How to Calculate Your Refinance Break-Even Point
The exact formula for a mortgage refinance break-even point, a worked example, and how rolling closing costs into the loan changes the math.
The refinance break-even point tells you how many months it takes for your monthly payment savings to add up to what you paid in closing costs. It's the single most useful number for deciding whether a refinance offer is worth taking.
The formula
Break-even (months) = closing costs ÷ (current monthly payment − new monthly payment). If the new payment isn't actually lower than the current one, there's no break-even point at all on payment savings alone — the refinance would need to be justified some other way, like removing PMI or a cash-out need.
Worked example
A $280,000 balance with 27 years remaining at 7.5% currently costs about $2,073/month. A new 30-year loan at 6.5% costs about $1,770/month — a savings of roughly $303/month. With $5,000 in closing costs paid upfront:
| Input | Value |
|---|---|
| Closing costs | $5,000 |
| Monthly savings | $303 |
| Break-even point | $5,000 ÷ $303 ≈ 16.5 months |
Stay in the loan longer than about 17 months, and every month after that is pure savings compared to keeping the original loan.
Rolling closing costs into the loan changes the math
If you roll the $5,000 in closing costs into the new loan balance instead of paying it upfront, there's no cash outlay to break even on — but that $5,000 now accrues interest for the full new loan term, which shows up as a smaller lifetime interest savings figure instead. Neither approach is universally better; it depends on whether you have the cash available and how long you'll keep the loan.
Run your own numbers, including the rolled-in-cost option, in the Refinance Calculator.