Is Refinancing Worth It? How to Do the Break-Even Check
A lower rate looks tempting, but closing costs decide whether refinancing actually pays. The break-even check is the honest test.
What is the Mortgage Refinance Calculator?
Refinancing replaces your remaining balance with a new loan, usually at a different rate. This calculator prices both loans with the standard formula over the years remaining: your old payment at the old rate, and the new payment at the new rate. The difference is your monthly saving, and dividing the closing costs by that saving gives the break-even point in months.
How to use it
- Enter your remaining mortgage balance and your current rate.
- Enter the new rate, the years remaining, and the closing costs.
- Press Calculate to see both payments, the monthly saving and the break-even time.
Worked example
Remaining balance 150000, old rate 6%, new rate 4%, years remaining 20, closing costs 3000: old payment about 1074.65, new payment about 908.97, monthly saving about 165.68, break-even about 18.11 months.
How long until refinancing pays for itself?
Divide the closing costs by the monthly saving: that is the break-even time in months. Before that point you are still repaying the cost of refinancing; after it, every month's saving is a genuine gain. If you expect to move or repay the loan before break-even, refinancing usually is not worth it.
Frequently asked questions
What does break-even mean?
It is how many months of savings it takes to recover the closing costs. If you stay in the loan longer than that, refinancing comes out ahead; if you leave sooner, it may not.
Does a lower rate always mean refinancing is worth it?
No. If the saving is small and the closing costs are high, the break-even point may be years away, and fees or a shorter remaining term can wipe out the benefit.