Mortgage Refinance Break-Even: How to Calculate It
Learn how refinance break-even works, what costs to include, and when a lower mortgage rate still may not be worth switching.
A lower mortgage rate is not automatically a good refinance. You need to recover closing costs before you move, sell, refinance again, or reset the loan term too far.
Break-Even Months = Refinance Costs ÷ Monthly Savings
Compare current loan, new loan, closing costs, and break-even month.
Calculate Refinance Break-Even →Costs to include
- Origination, underwriting, and processing fees
- Appraisal, title, recording, and legal costs
- Points paid to buy down the rate
- Prepayment penalties, if any
- Any rolled-in costs that increase your new balance
The term-reset trap
Refinancing from a loan with 22 years left into a fresh 30-year mortgage can lower the payment while increasing lifetime interest. Compare payoff date and total interest, not only monthly savings.
When refinancing is strongest
It works best when the rate drop is meaningful, closing costs are reasonable, and you expect to keep the loan beyond the break-even point. Then use the Mortgage Payoff Calculator to see if keeping the old payment on the new lower-rate loan accelerates payoff.
Cash-out refinance is a different decision
Key Takeaways
- Break-even is refinance cost divided by monthly savings.
- Include all closing costs and points.
- A lower payment can still increase lifetime interest if the term resets.
- Refinance only if you expect to keep the loan beyond break-even.