Math
Break-even explained
Break-even answers one question: how long until the monthly savings from a refinance have paid back what you spent to get the new loan?
The formula RefiBreak uses
Monthly P&I is the standard amortizing payment:
M = P × r(1+r)n / ((1+r)n − 1)
where P is the current balance, r is the monthly interest rate (annual rate ÷ 12), and n is the number of remaining months. If the rate is zero, the payment is simply balance ÷ months.
Then:
- Monthly savings = current P&I − new P&I
- Break-even months = closing costs ÷ monthly savings
If monthly savings are zero or negative, there is no payment break-even. You would be paying fees to keep or raise the payment.
A worked example
Balance $285,000. Current rate 6.75% with 27 years left. New rate 5.99% for 30 years. Closing costs $6,500.
| Measure | Result |
|---|---|
| Current monthly P&I | About $1,914 |
| New monthly P&I | About $1,707 |
| Monthly savings | About $207 |
| Break-even | About 31 months |
That looks tidy — until you notice the new term is three years longer. The payment fell partly because the clock restarted. Open the interest comparison on the calculator before you call that a win.
What break-even does not capture
- Property taxes, homeowners insurance, and HOA dues
- Mortgage insurance that may drop off the current loan sooner
- Tax treatment of points and mortgage interest (talk to a tax professional)
- The chance you sell, refinance again, or pay extra principal
- Cash you must bring to closing even if some fees are “rolled in”
A better pair of numbers
Use break-even to test time in the home. Use remaining interest (and interest plus closing costs) to test the lifetime cost of restarting the term. If both look better and you can comfortably fund closing, the refinance is on firmer ground.
Related: when a refinance makes sense and what to put in the closing-cost box.
Not a lender offer. RefiBreak is an educational calculator, not financial, tax, or legal advice. Actual payments, APR, and closing costs depend on credit, loan type, escrow, and lender fees. Confirm figures with a licensed mortgage professional. Full disclaimer.