Refinance Break-Even: When the New Loan Pays for Itself
Assumptions on sliders · method reviewed September 7, 2026
Shows the month a new mortgage has paid for its closing costs, counted two ways, and whether you come out ahead for as long as you plan to keep the home. AboutLess
In plain words. Refinancing trades closing costs today for a lower rate, a different term, or both. The common rule of thumb divides the costs by the drop in the monthly payment and calls that the break-even. This tool shows that number and then a truer one. It counts the interest each loan charges month by month and finds the month the interest saved first exceeds the costs. It also totals the interest over the whole life of each loan, so a longer term that lowers the payment by starting the clock over shows up as what it is.
Why it matters. A lower payment feels like a saving, and sometimes it is only a longer loan. The difference between the two break-evens is often years, and the verdict turns on how long you will actually keep the home.
An example. $400,000 at 7.0% with 27 years left, refinanced at 6.0% for 27 years with $8,000 in costs: the payment falls by about $255 a month, the simple rule says 32 months, and the interest count says 24 months. Keeping the home 7 years, the refinance leaves you ahead by about $19,926.
Where it stops. The rates and the horizon are assumptions, and the horizon decides the verdict. The tool counts nominal dollars and does not discount them, holds both rates steady, and ignores what the payment saving could earn if invested, points paid to buy the rate down, mortgage insurance, prepayment penalties, escrow changes, and the tax deduction for interest. Everything it leaves out.
What you still owe on the current loan. It is on your latest statement.
The rate on the loan you are offered, before any points.
Fees, title, appraisal, and any points. They are on the loan estimate.
The verdict is measured at this point. A refinance that pays for itself after you have sold was a loss.
- Monthly payment on the new loan
- $2,495.94
- Down from $2,751.26, a saving of $255.32 a month
- Interest over the life of the new loan
- $408,685
- Against $491,408 on the current loan from today. After the costs, the new loan saves $74,723 over its life
- Position if you keep the home 7 years
- $19,926 ahead
- Payments made plus the balance still owed, plus the closing costs, on each loan at that point
The plain rule is that a refinance is bought with the closing costs and repaid with the interest saved. A lower rate on the same term repays it steadily. A longer term lowers the payment further but slows the repayment, because more of each payment is interest for longer. A shorter term can raise the payment and still repay the costs quickly, because so much less interest is charged. The verdict is the position at the year you expect to leave, not the month the loan pays for itself.
This is an assumption tool, and the rates and the horizon are yours to set. It counts nominal dollars month by month, holds both rates steady, and treats the closing costs as paid in cash or added to the balance as you choose. It leaves out what the payment saving could earn if invested, points paid to lower the rate, mortgage insurance, prepayment penalties, escrow, and the tax deduction for interest. Method reviewed September 7, 2026. Hypothetical; educational, not advice.
This is a simplified model, not your actual tax return or plan. It only knows what you type in, leaves out rules that may apply to you, and cannot weigh the other facts and trade-offs a real decision depends on. Before you act, talk with a professional who knows your whole situation.
Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.