Two ways to measure refinance break-even
The usual rule of thumb divides the closing costs by the monthly payment saving. It is quick, but it can mislead in two ways: it ignores fees that are added to the new loan, and it ignores how much you still owe. A lower payment can come from a lower rate, or simply from stretching the debt over more years. The U.S. Consumer Financial Protection Bureau points out that a longer term can lower the monthly payment while raising the total cost. This calculator runs two full month-by-month schedules, your current loan as it stands and the new loan, and reports two separate measures:
- Cash-cost recovery: the first month in which the payments you have saved cover the costs you paid upfront.
- Debt-adjusted break-even: the first month in which you are ahead once the loan balance still owed on each side is counted as well.
The second measure is the stricter one. It answers the question “if I sold the house or repaid the loan in month t, would I be better off for having refinanced?” Use your own quote for the new rate, term and fees, and the balance, rate and months remaining from your current statement.
Count each fee once
Enter closing costs, points and any prepayment penalty in exactly one box. Costs paid upfront are cash you pay at signing. Costs added to the loan increase the new loan's starting balance, so you repay them, with interest, inside the new payment. A financed fee is not free: it shows up as a higher balance. In the example below, moving the $3,000.00 from upfront to financed leaves no cash cost to recover, yet the debt-adjusted saving at month 60 falls to $10,833.25 because the fee and its interest sit in the balance. The CFPB explains how points and lender credits trade fees against rate; enter the combination you are actually offered.
The equations
For each month t, using cumulative principal-and-interest paid (paid) and the balance after that month's payment (bal):
- Monthly payment on each loan: M = B × i ÷ (1 − (1 + i)−n), with i = annual rate ÷ 1,200 (B ÷ n at 0%). The new balance B is the current balance plus financed costs.
- Cash saving(t) = paidcurrent(t) − [upfront costs + paidnew(t)].
- Debt-adjusted saving(t) = cash saving(t) + balcurrent(t) − balnew(t).
The debt-adjusted saving always equals the interest avoided on the current loan, minus the interest paid on the new one, minus all refinance costs. That identity is a useful check: a financed fee cannot vanish, and it cannot be charged twice. Interest accrues monthly on the opening balance, and the last payment only covers what is owed.
Worked example
A $200,000.00 balance at 6% with 240 months left has a modeled payment of $1,432.86. Refinancing into 4.5% for 240 months with $3,000.00 paid upfront lowers it to $1,265.30, $167.56 less a month. Dividing $3,000.00 by $167.56 suggests about 18 months, and the schedule agrees: cash-cost recovery comes in month 18. The debt-adjusted break-even comes earlier, in month 13, because the new loan's balance also falls faster at the lower rate.
After 60 months you would have paid $85,971.73 on the current loan and owe $169,799.20, against $75,917.93 on the new loan and $165,399.98 owed. The cash saving is $7,053.80 and the debt-adjusted saving $11,453.02. These are undiscounted model estimates under the entered terms.
When a term reset reverses the result
Now refinance the same $200,000.00 at 6% with only 120 months left into a 30-year loan at 4% with $3,000.00 upfront. The payment drops sharply, and the debt-adjusted saving first turns positive in month 10. But the new loan keeps charging interest for another 20 years after the current one would have been repaid. By month 120 the debt-adjusted saving is -$8,698.38, and by month 360 it is -$80,289.81. The calculator warns you whenever a first break-even later reverses, and the table shows the path, so a first crossing is never mistaken for a permanent one. If you want a lower payment but not a longer debt, try a new term equal to the months you have left.
Financing the fee at 0% shows the identity at work: moving a $120,000.00 balance at 0% over 120 months into a $123,000.00 loan at 0% over 120 months raises the payment from $1,000.00 to $1,025.00, and the debt-adjusted saving stays at -$3,000.00 every month. Nothing is ever recovered, because there is no interest to save.
Limits of this model
The calculator covers a fixed-rate, no-cash-out refinance of one loan. It does not include mortgage insurance changes, escrow transfers, prepaid interest or refunds, tax effects such as interest deductions, adjustable rates, lender credits beyond what you enter, extra payments, or the return you could earn on the cash you pay upfront. Any of these can change the real result. Check your loan estimate and closing disclosure before deciding; this is scenario arithmetic, not advice. To see how extra payments shorten your current loan instead, use the mortgage payoff calculator. To weigh paying the loan down against investing, use the mortgage vs investing calculator, and for the full payment schedule of any fixed loan, the loan payment calculator.
FAQ
Should I enter fees as upfront or financed?
Enter each cost once, where you will actually pay it: cash at closing goes upfront, costs rolled into the new loan go in “added to loan”.
Is a lower monthly payment enough to refinance?
No. A lower payment can come from a longer term. Compare the debt-adjusted saving at the month you expect to sell or repay, not only the payment.
What holding period should I enter?
How long you realistically expect to keep the new loan before selling, refinancing again or repaying it. The result at that month is highlighted.
Why are there two break-even months?
Cash-cost recovery only compares payments with upfront costs. The debt-adjusted break-even also counts the balance still owed, so it includes financed fees and term changes.
What if there is no break-even, or it reverses?
“Not reached within 600 months” means the costs are never recovered. A reversal warning means you get ahead at first, then fall behind again later.
Are taxes, PMI and escrow included?
No. The model compares principal and interest plus the costs you enter. Escrow, mortgage insurance and tax effects can change the real result.