A lower rate is not automatically a good refinance. This works out how long it takes to recover the closing costs — the number that actually decides whether refinancing is worth doing.
How it works
Break-even point
break-even months = closing costs ÷ monthly payment savings
Why “is the new rate lower” is the wrong question alone
Refinancing restarts the front-loaded interest pattern of an amortizing loan — a borrower ten years into a thirty-year mortgage has already worked through a decade of the highest-interest payments, and a new thirty-year term moves them back to year one of that same pattern. A lower rate can still be a net win, but only if you keep the loan past the break-even point — leaving sooner means the closing costs were a net loss regardless of how much lower the new rate was.
How to use this calculator
- Enter your current and prospective new monthly payment.
- Enter the closing costs for the refinance.
- Optionally, enter how long you expect to keep the loan to see if it’s likely worth it.
Frequently asked questions
What counts as closing costs on a refinance?
Lender fees, appraisal, title insurance and similar charges — check your specific loan estimate for the full breakdown, since these vary by lender and loan size.
Should I roll closing costs into the new loan instead of paying upfront?
You can, but it changes the math — rolling costs into the loan means paying interest on them too, which this calculator doesn’t model separately; enter the costs as paid upfront for the calculation shown here.
Does a cash-out refinance work the same way?
The break-even logic is the same, but a cash-out refinance also increases your loan balance for the cash withdrawn — factor that into your new payment figure before comparing.
Why might I refinance even without a lower rate?
Some borrowers refinance to switch loan types (adjustable to fixed, for instance) or to remove PMI once enough equity has built up — reasons this calculator’s pure interest-savings comparison doesn’t capture.
What if my new payment is actually higher?
Then this refinance never breaks even on payment savings alone — this calculator flags that directly rather than computing a meaningless break-even time.
