Break-even after
34 months
A refinance is a bet that you will still be holding the loan when the closing costs have been repaid. This tool finds that month, shows your cumulative position year by year, and tests how small a rate reduction stops being worth the trouble.
Both payments are computed over the same remaining term, so this models a rate-and-term refinance that keeps your payoff date. A refinance that also extends the term lowers the payment further but raises total interest, and is not modelled here.
| Months held | Net position |
|---|---|
| 12 | $-3,856 |
| 24 | $-1,711 |
| 36 | $433 |
| 48 | $2,577 |
| 60 | $4,722 |
| 72 | $6,866 |
| 120 | $15,444 |
| Rate reduction | New rate | Monthly saving | Break-even |
|---|---|---|---|
| -1.00 pp | 6.28% | $261.03 | 23 months |
| -0.75 pp | 6.53% | $196.81 | 31 months |
| -0.50 pp | 6.78% | $131.88 | 46 months |
| -0.25 pp | 7.03% | $66.27 | 91 months |
| No change | 7.28% | $0.00 | Never |
Refinancing costs money up front and saves money every month afterwards. That structure makes it a straightforward holding-period question: you come out ahead only if you remain in the loan long enough for the accumulated monthly saving to exceed what you paid to obtain it. Everything else about a refinance is secondary.
The cumulative position is therefore the number to watch, not the monthly saving. On the default figures — $400,000 at 7.28% refinanced to 6.60% with $6,000 of costs over 28 remaining years — the payment falls by $178.70 a month, which sounds like an easy decision. The cumulative position is still negative at month 24, at minus $1,711. It turns positive during month 34. Anyone who sells or refinances again before that point has spent more on the transaction than it returned.
The relationship between the size of a rate reduction and the length of the break-even is sharply non-linear, and this is where most refinance decisions go wrong. The sensitivity table in the calculator makes it concrete on a $400,000 balance with $6,000 of costs.
| Rate reduction | Monthly saving | Break-even | Verdict on a 5-year horizon |
|---|---|---|---|
| 1.00 pp | $261.03 | 23 months | Comfortably ahead |
| 0.75 pp | $196.81 | 31 months | Ahead |
| 0.50 pp | $131.88 | 46 months | Marginal |
| 0.25 pp | $66.27 | 91 months | Roughly two full years past a 5-year hold |
Halving the rate cut more than doubles the break-even. Cutting it by three quarters roughly quadruples it. The reason is that the monthly saving scales almost in proportion with the rate reduction, while the cost stays fixed, so the time required to recover it scales inversely — and then lengthens further because the remaining balance falls and there is less interest to save on.
The practical rule that falls out of this: the smaller the rate cut, the shorter your intended holding period has to be for the refinance to make any sense, and short holding periods are exactly when a refinance is hardest to justify. A quarter-point reduction is not a refinance opportunity; it is a marketing offer.
The cost figure in this tool is a single input, but in reality it is a bundle, and the bundle is where the comparison between two offers gets decided. Typical components include an application fee, an origination fee expressed as a percentage of the loan, an appraisal, a title search and title insurance, recording fees, a credit report and any points paid to buy the rate down.
Two of these behave differently from the rest. Points are a voluntary prepayment of interest: they lower the rate and raise the up-front cost, which lengthens the break-even on purpose. That can be the right trade for a borrower who is certain to hold the loan for a long time, and it is exactly the wrong trade for anyone who might move.
Some lenders advertise low or no closing costs. Those costs do not disappear; they reappear as a higher rate, which this tool will show you immediately if you run the no-cost offer as your new rate. Comparing a no-cost offer with a low rate against a full-cost offer with a lower rate is the single most useful thing you can do with this calculator: enter the rate each lender actually quotes and the cost each one actually charges, and compare the break-even months side by side.
Many refinances reset the clock rather than preserve it. A borrower 12 years into a 30-year loan who refinances into a fresh 30-year term gets a much lower monthly payment, because the remaining balance is now spread over 30 years instead of 18. The payment falls, the borrower feels better, and total interest over the life of the new loan rises.
This tool avoids that confusion by holding the remaining term constant, so that the only thing moving is the rate. That is the honest way to answer the question the page is asking. If you are considering a term extension as part of a refinance, the payment reduction is not evidence that the refinance is a good deal — it is evidence that you have agreed to borrow for longer.
To see the term effect separately, run this calculator for the rate change, then run the mortgage payment calculator with the new balance over the new term and compare total interest against the interest remaining on your current loan. The two numbers together give you the whole picture; neither one alone does.
On the default figures — a $400,000 balance moved from 7.28% to 6.60% with $6,000 of closing costs — 34 months. The general shape is that break-even moves inversely with the size of the rate reduction: a full percentage point takes about 23 months here, half a point takes 46, and a quarter point takes 91. Enter your own offer and the tool will give you your own answer.
Use the monthly saving for the break-even test and the total interest figure for the lifetime view, and be suspicious of either one quoted alone. A refinance can have a genuinely attractive total interest saving and still be a bad decision if you sell in year three, because total interest assumes you complete the term. The cumulative table is the compromise: it shows what you are actually ahead or behind at each point in time.
Not necessarily, and the tool will show you why. A no-cost refinance normally carries a higher rate, so set the cost field to zero and raise the new rate to whatever the lender quoted. If the payment reduction is still large enough that the break-even falls within your holding period, it is a reasonable offer; if the higher rate consumes most of the saving, the cost has simply been moved from the closing table into the rate, where it lasts for the whole term rather than once.
The application produces a hard inquiry, and multiple mortgage inquiries within a short shopping window are generally treated as a single inquiry by the scoring models. The larger effect is on the loan itself rather than the score. This page is arithmetic on rate and cost, and does not model credit scoring; treat any claim about the size of a score effect as outside what a calculator can establish.
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Cluster us/mortgage · Unit us-mortgage-refinance-break-even-calculator · Engine amortizing-loan / refinance · Method: Both payments are computed with the amortizing-loan formula over the same remaining term; the monthly difference is accumulated and compared against total closing costs to find the crossover month.