How to calculate refinance
Break-even months = Closing costs ÷ Monthly savings
Worked example. Monthly savings: $299.
Example inputs — Current loan balance: $300,000; Current rate: 7.5 %; New rate: 6 %; New loan term: 30 years; Closing costs: $5,000. Starting values are illustrative.
Break-even in 17 months
From George Guju, founder of Calculyn · Educational calculator guidance, not professional advice.
How it works
Refinancing trades closing costs for a lower monthly payment. The break-even point is how long until the savings repay those costs — worth it if you'll stay past that point.
Using the refinance estimate
Refinancing can trade an upfront cost for a lower monthly loan payment. This tool compares two fixed-rate payment scenarios and estimates how long their difference takes to recover closing costs. Its important simplification is that the current payment is recalculated on a 30-year basis using the balance entered. It does not accept your actual remaining term. Use the result as an initial comparison, not a complete decision about an existing mortgage.
Step-by-step inputs
- Current loan balance. Use the outstanding principal you would refinance, not the original amount borrowed or today's home value. Starting example: $300,000 .
- Current rate. Enter the current rate, remembering that this model uses a fresh 30-year basis for the comparison payment. Your actual current installment can differ. Starting example: 7.5 %.
- New rate. Use a refinance quote rather than a prediction of future rates. The model does not price discount points automatically. Starting example: 6 %.
- New loan term. Select the new repayment term. Resetting a loan to a longer term may reduce the payment without reducing lifetime borrowing costs. Starting example: 30 years .
- Closing costs (Advanced options). Include upfront costs you want the payment savings to recover. If costs are rolled into the loan, this simple input alone does not increase the financed balance. Starting example: $5,000 .
Worked example with the starting values
Using the starting inputs, the estimate is Monthly savings: $299 .
The monthly savings equal the modeled current payment minus the new payment. Closing costs divided by positive monthly savings produce the break-even period, rounded up to a whole month. Five-year net savings subtract the upfront costs from 60 months of that payment difference.
Break-even in 17 months
- Current monthly payment (30-yr basis)
- $2,098
- New monthly payment
- $1,799
- Break-even point
- 17 months
- 5-year net savings
- $12,940
Compare new rate scenarios
All other inputs stay at their starting values. These are modeled comparisons, not quotes, predictions or individual recommendations.
| New rate | Monthly savings |
|---|---|
| 5.5 % | $394 |
| 6 % | $299 |
| 6.5 % | $201 |
Make a useful comparison
Compare the modeled current payment with your mortgage statement before using the break-even number. If you are several years into the current loan, the 30-year comparison may not represent your real scheduled payment. Check the lender's side-by-side amortization disclosure.
Think about how long you will keep the new loan. Selling, refinancing again or paying it off before break-even can prevent monthly savings from covering costs. Include the cash tied up upfront when comparing refinancing with doing nothing.
Review both payment relief and remaining debt. A lower installment over a new long term can leave more principal outstanding at a future sale date. This payment-based tool does not compare the complete remaining-balance paths of both loans.
Common mistakes to avoid
- A lower rate is not automatically a lower payment if the new term is much shorter. Conversely, a term extension can lower the payment even when lifetime interest rises.
- If monthly savings are zero or negative, there is no positive payment-savings break-even. A zero in that breakdown should not be interpreted as immediate cost recovery.
- Taxes, insurance, escrow changes and tax deductions are not included. Do not mistake a change in escrow deposits for savings on loan principal and interest.
Assumptions & limitations
- Results are rounded for display.
Formula and assumptions reviewed October 2026 by the Calculyn team. How we build our calculators
Frequently asked questions
How do I calculate the break-even point for refinancing?
Divide upfront refinancing costs by monthly payment savings, then round up to a whole month. If savings are zero or negative, there is no payment-savings break-even. This tool reconstructs the current payment on a 30-year basis, so check your actual remaining loan.
Is it worth refinancing if the rate drops by 1%?
A one-point drop alone does not decide it. Balance, costs, remaining term, new term and time you keep the loan determine the benefit. Compare break-even, lifetime interest and remaining debt rather than relying on a rate-drop rule.
What are the typical closing costs to refinance a mortgage?
Costs vary with lender, location and loan structure. Use an itemized Loan Estimate rather than a universal percentage. Enter costs paid upfront here; financing them changes the new balance and is not automatically modeled.
When should I rerun a refinance estimate?
Update it when you receive a new rate or cost quote, your balance changes or your moving plans change. Compare offers using the same assumptions and distinguish rate-lock terms from illustrative rates.
Does refinancing reset my loan term?
It replaces the old mortgage with a new agreed term. Taking a new 30-year loan can extend repayment even if the payment falls; choosing a shorter term can raise the payment. This model compares against a reconstructed 30-year current payment, not your original schedule.
How long should I plan to stay in my home for refinancing to make sense?
For payment savings to repay upfront costs, you generally need to keep the new loan beyond break-even. Selling or refinancing again earlier can prevent cost recovery. Payment savings alone do not measure lifetime loan cost.
Why does my current payment differ from the estimate?
The calculator reconstructs a payment on a 30-year basis. Your actual remaining term, original balance and escrow charges can make the statement payment different.
Does breaking even prove refinancing is best?
No. It only measures recovery of costs through modeled payment savings. Remaining debt, lifetime interest, cash needs and loan terms also matter.