Refinance Break-Even Calculator
Find out how many months until your refinance pays for itself — then see lifetime savings.
Simulate a Refinance →How the Refinance Break-Even Point Works
Refinancing replaces your current mortgage with a new one at a lower rate — but it costs money upfront. The break-even point is the moment your monthly savings recoup those closing costs. After that, every month is pure savings.
The formula is simple:
Break-even (months) = Closing Costs ÷ Monthly Savings
If you plan to stay in your home longer than the break-even period, refinancing makes financial sense. If you might move sooner, the closing costs may not be recovered.
Example: $350,000 loan, dropping from 7.5% to 6.5%
| Current payment | $2,447/mo |
| New payment | $2,212/mo |
| Monthly savings | $235/mo |
| Closing costs (3%) | $10,500 |
| Break-even | 45 months (3.7 years) |
| Lifetime savings (if staying 30yr) | $74,000+ |
When Does Refinancing Make Sense?
- The 0.75% rule — refinancing typically makes sense when you can drop your rate by at least 0.75%. Smaller drops may not justify closing costs.
- Break-even under 36 months — if you'll recoup costs in under 3 years and plan to stay, it's usually a clear win.
- You plan to stay 5+ years — the longer you stay, the more savings compound beyond break-even.
- Removing PMI — if your home has appreciated to 20%+ equity, refinancing can eliminate PMI ($100-300/mo savings).
- Switching from ARM to fixed — lock in a rate before your adjustable rate resets higher.
What Are Refinance Closing Costs?
Closing costs typically run 2%-6% of the loan amount. On a $300,000 mortgage, expect $6,000-$18,000. Common costs include:
- Application fee ($300-500)
- Appraisal ($400-700)
- Title search and insurance ($700-1,500)
- Origination fee (0.5%-1.5% of loan)
- Recording fees ($100-250)
- Prepaid interest and escrow
Some lenders offer "no-closing-cost" refinances — but they roll the costs into a higher rate. You pay less upfront but more over time. Compare both options in the simulator.
Refinance vs Extra Payments
Both reduce total interest, but they work differently:
- Refinancing lowers your rate and monthly payment. Best when rates have dropped significantly since you got your loan.
- Extra payments keep your rate but pay down principal faster. Best when rates haven't dropped much or you don't want to restart a 30-year clock.
- Best combo: Refinance to a lower rate, then put the monthly savings toward extra principal payments. Double the impact.
Frequently Asked Questions
How do I calculate my refinance break-even point?
Divide your total closing costs by your monthly savings. For example, $8,000 in costs with $250/month savings = 32 months to break even. If you'll stay in the home longer than 32 months, refinancing makes sense.
How much does it cost to refinance a mortgage?
Refinance closing costs are typically 2%-6% of the loan amount. On a $300,000 loan, expect $6,000 to $18,000. This includes appraisal, title insurance, origination fees, and prepaid items.
Is it worth refinancing for 1% lower rate?
Usually yes. On a $300,000 loan, dropping 1% saves roughly $200/month and $70,000+ over 30 years. With typical closing costs of $8,000-10,000, you'd break even in 40-50 months. If you plan to stay 5+ years, it's almost always worth it.
Does refinancing restart my 30-year mortgage?
It can — if you refinance into a new 30-year term, the clock resets. But you can choose a shorter term (20 or 15 years) to avoid this. Or refinance into 30 years for the lower payment, then make extra payments to stay on your original timeline.
Should I refinance or just pay extra on my mortgage?
If rates have dropped 0.75%+ since your loan, refinance first for the lower rate, then add extra payments. If rates are similar to yours, skip refinancing and just pay extra — you avoid closing costs and still save significantly on interest.
What is a no-closing-cost refinance?
A no-closing-cost refinance rolls the fees into your loan balance or a slightly higher rate. You pay nothing upfront but more over time. It's best if you're not sure how long you'll stay — no break-even period to worry about, but lower lifetime savings.