What this calculator does
It answers the question behind every refinance quote: how long until the money you spend to get the new loan comes back to you, and does the new loan cost more or less in the end?
A refinance replaces your mortgage with a new one, and the new loan has closing costs. The break-even is the month your savings have covered them. The simple break-even divides the costs by the drop in your payment; it is the figure most people quote. The full break-even, the big number in the results, also counts what you would still owe on each loan, which matters whenever the new term differs from the years you have left.
Enter your current loan and the new quote. You get both break-evens, both payments, the interest left on each loan, the lifetime difference, and a chart of where you would stand at the end of every year.
How the math works
Both payments come from the standard amortization formula: your balance over the years you have left at your current rate, and the new loan amount over the new term at the new rate. The difference is the monthly savings, S. The simple break-even is one division, rounded up to a whole month:
- C
- closing costs
- S
- current payment − new payment (principal and interest)
The full break-even keeps a running score instead: payments avoided on the old loan, minus payments on the new one, minus costs paid in cash, plus the difference in what you would still owe. It is reached the first month the score hits zero.
- N
- net position after m months (above zero means ahead)
- m
- months since closing
- C
- closing costs paid in cash (zero if added to the loan)
- D
- old loan's balance − new loan's balance after m months
The balance term is why resetting the term matters. Stretch 25 remaining years into a new 30-year loan and the payment falls even at the same rate, because each payment repays less principal. That part of the savings is not saved at all; it shows up as a higher balance. D stays negative while you owe more on the new loan, and the full break-even waits until the savings cover that gap too.
When costs are added to the loan, nothing is paid in cash, but the new balance starts higher by the same amount, so you begin just as far behind. The lifetime comparison adds up every remaining payment on each loan, plus any costs paid in cash.
Worked example
You owe $260,000 at 7.25% with 25 years left. A lender quotes a new 30-year loan at 6.25%, with $5,200 in closing costs paid at closing.
Worked example
- Current payment: $260,000 over 300 months at 7.25% is $1,879.30. New payment: $260,000 over 360 months at 6.25% is $1,600.86. Savings: $278.44 a month.
- Simple break-even: $5,200 ÷ $278.44 rounds up to 19 months.
- Check the balances at month 19. You have saved $5,290.36 in payments, $90.36 more than the costs. But you owe $255,086.52 on the new loan, against $253,809.24 on the old one. Counting that $1,277.28 gap, you are still $1,186.92 behind.
- Running the score forward, it first reaches zero at month 25: the full break-even, 2 years 1 month after closing.
- Lifetime: $563,788 left to pay on the current loan, against $581,515 for the new one, counting the costs.
The refinance breaks even after 2 years 1 month, not the 19 months the simple formula suggests, and over its full term it costs $17,727 more than keeping the current loan, because it adds 5 years of payments.
Now compare like with like. A 25-year loan at 6.25% pays $1,715.14, saving only $164.16 a month, so the simple break-even is 32 months. Yet its balance falls faster than the old loan's, so the full break-even comes at month 24 and it costs $44,046 less over its life. Adding the costs to the 30-year loan instead raises the balance to $265,200, the payment to $1,632.88 and the full break-even to month 29, and it costs $24,051 more than keeping the current loan.
Common mistakes
- Comparing payments on different terms. At a similar rate, a new 30-year payment will almost always look lower than the payment on a loan with fewer years left. To see what the rate alone is worth, set the new term to the years you have left and compare again.
- Counting the wrong closing costs. Escrow deposits and prepaid interest are part of your cash to close, not the cost of refinancing: you would pay that tax, insurance and interest anyway, and the old loan's escrow balance is generally refunded after payoff. Enter the fees, minus any lender credit.
- Treating a no-closing-cost offer as free. The costs are either built into a higher rate or added to the balance. Enter it that way and compare it with the version where you pay the costs.
- Forgetting how long you will keep the loan. A break-even after you expect to sell is a cost, not a saving. Check the chart at the year you might move.
- Entering the original loan instead of today's numbers. The current loan is what you owe now, at your rate, over the time left. The original amount and term overstate both the payment and the interest left.
Limits of this estimate
- It compares principal and interest only. Tax and insurance do not change when you refinance, but if the new loan adds or drops mortgage insurance, the real payment difference will differ.
- Both loans are treated as fixed-rate and paid exactly as scheduled, with no extra payments.
- Cash-out refinancing is not modeled. The new loan here is your current balance, plus the closing costs only when you choose to add them.
- It does not count what the closing costs could have earned elsewhere, or any tax effects.
- The rate and costs come from your Loan Estimate and can change until the rate is locked. Timing details, such as a skipped payment between loans, are ignored.
Frequently asked questions
How long should a refinance take to break even?
There is no universal number. What matters is how it compares with how long you expect to keep the new loan. If you sell, pay off or refinance again before then, the closing costs were never recovered. The chart shows where you would stand in any year.
Why is the full break-even later than the simple one?
Usually because the new loan has a longer term, so for years you owe more on it than you would have owed on the old loan. The full break-even counts that gap; the simple one ignores it. With the same remaining term on both, the full break-even can come sooner than the simple one, because the lower rate pays the balance down faster.
What happens when I add closing costs to the loan?
You pay nothing for them at closing, but the new balance starts higher by the same amount, the payment rises a little, and you pay interest on the costs for the whole term. Switch between “Paid at closing” and “Added to the loan” to see how the break-even and lifetime cost move.
My new payment would be higher. Can a refinance still break even?
It can, when the new loan has a shorter term: the balance falls much faster, and the full break-even counts that. The simple formula cannot, because there are no monthly savings to divide into the costs.
Does this work for a cash-out refinance?
No. In a cash-out refinance the new loan is larger than your balance because you take money out, so the payments are not comparable. Here the new loan replaces your current balance, plus the closing costs if you add them.
Where do I find the numbers to enter?
Your balance and the time left are on your mortgage statement. The new rate and closing costs come from the Loan Estimate a lender gives you after you apply, which lists each fee and any lender credit.
Next steps: with a lump sum, the recast calculator shows the lower payment you could get on your current loan without a new one. If the quote includes discount points, the points break-even calculator tests whether they pay for themselves. And the extra payment calculator shows how extra principal shortens the loan you already have.