Compare your current loan with a refinance and find the break-even point.
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How is a mortgage refinance break-even point calculated?
Break-even (months) = closing costs ÷ monthly saving, where monthly saving = current payment − new payment and each payment is the standard amortised payment for the balance, rate and term. For example, refinancing a $200,000 balance from 6% to 4% over 30 years cuts the payment by about $244 a month, repaying $4,000 of costs in roughly 16 months.
Understanding your result
Refinancing replaces your loan with a new one, usually at a lower rate, but with upfront costs. It is worthwhile if you keep the loan past the break-even point. Extending the term lowers the payment but can raise total interest.
Formula and method
Each payment is the standard amortised payment for the balance, rate and term. Monthly saving = current payment − new payment. Break-even (months) = closing costs ÷ monthly saving.
Assumptions and limitations
The comparison uses the balances, rates, terms and costs you enter and assumes you keep the new loan to break-even and beyond. It ignores rate resets on variable loans, escrow changes and the interest cost of resetting the term. Confirm all fees with lenders. Figures are estimates for comparison, not financial advice.
Worked example
Refinancing a $200,000 balance from 6% to 4% over 30 years cuts the payment by about $244 a month, paying back $4,000 of costs in roughly 16 months.
How to use this tool
- Enter your current balance, rate and remaining months.
- Enter the new rate, term and closing costs.
- Read the savings and break-even point.
Common mistakes to avoid
- Ignoring closing costs when comparing payments.
- Resetting to a longer term and paying more interest overall.
About the Refinance Calculator
The Refinance Calculator compares your current loan with a new one, showing the new monthly payment, the monthly saving, and the break-even point where the savings repay the closing costs.
Who should use this tool
Homeowners and borrowers weighing up whether to refinance.
Benefits
- New payment vs current payment.
- Monthly savings and break-even months.
- Total cost of each option.
- Accounts for closing costs.
Practical use cases
- Deciding whether a lower rate is worth the costs.
- Seeing how long until refinancing pays off.
- Comparing a shorter term at a new rate.
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Frequently asked questions
What is the break-even point?
The number of months until your monthly savings add up to the closing costs. Refinancing pays off only if you keep the loan beyond it.
Does a lower payment always mean savings?
Not necessarily. A longer term lowers the payment but can increase the total interest you pay, so check the total cost too.
Can refinancing cost more even at a lower rate?
Yes. Extending the term or resetting the clock can raise total interest despite a smaller monthly payment, and closing costs add up front. If you sell or refinance again before the break-even point, the savings may not repay those costs. Weigh the monthly saving against total interest and how long you will stay.