Refinance breakeven calculator

The only number that actually matters

Refinancing isn't automatically worth it just because rates dropped — closing costs are real, typically 2-5% of the loan amount. The breakeven point above is simply those costs divided by your monthly savings: how long you'd need to stay in the home for the refinance to have paid for itself.

If you plan to move before that breakeven point, refinancing usually isn't worth it, regardless of how attractive the new rate looks.

Read the full guide: When Does Refinancing Actually Make Sense? →

Closing costs don't disappear when you roll them in

Most refinances are quoted as "no cost out of pocket," which is true and misleading at the same time. The costs are still charged — they're added to the new loan balance. You finance them, at the new rate, for the next thirty years.

That changes the breakeven arithmetic in a way the headline number hides. If you roll $6,000 of costs into the balance, you don't just owe $6,000 more; you owe it plus roughly three decades of interest on it. The monthly payment comparison still looks favorable, because $6,000 spread across 360 payments barely registers. The lifetime cost is a different story.

The alternative is a lender credit, where you accept a slightly higher rate in exchange for the lender covering costs. That's not free either — you're paying for it monthly, forever, instead of once. Neither structure is wrong. What matters is knowing which one you picked, because loan officers often present the no-out-of-pocket version as though it has no cost at all.

The clock resets, and that's the part people miss

Refinancing a loan you've held for seven years into a fresh 30-year term doesn't just lower your rate. It restarts amortization. You go back to the front of the schedule, where the overwhelming majority of each payment is interest and almost none of it touches principal.

You can have a lower monthly payment, a lower rate, and still pay substantially more interest across your life — because you extended the runway. This is the single most common way a mathematically "good" refinance turns out badly.

The fix is straightforward if you're aware of it: refinance into a shorter term that matches your remaining years, or keep the 30-year loan for its payment flexibility but voluntarily pay it on your old schedule. The second option is often better, because you retain the ability to drop back to the lower required payment if income changes.

Rate-and-term and cash-out are different products

A rate-and-term refinance replaces your loan with a similar-sized one at better terms. A cash-out refinance replaces it with a larger one and hands you the difference. Lenders price these differently, and cash-out generally carries a rate premium along with tighter equity requirements.

The distinction matters more than the naming suggests. Cash-out converts home equity into spendable money, which is genuinely useful for consolidating higher-rate debt or funding a renovation. It also converts unsecured debt into debt secured by your house. Credit card debt is expensive; it does not cost you your home. Moving that balance onto a mortgage lowers the rate and raises the stakes.

Three situations where breakeven math misleads

That last one is worth knowing about because almost nobody mentions it. A recast keeps your existing rate and term but recalculates the payment against a reduced balance after a lump-sum principal payment. If your current rate is already good, recasting achieves the payment relief without resetting the clock or paying closing costs. Not all servicers offer it, and it's rarely advertised — you have to ask.