PmtCalcThe break-even point
Refinancing costs money up front, typically 2% to 5% of the loan. The break-even point is how long the monthly savings take to pay those costs back:
Break-even months = closing costs ÷ monthly savings
If you expect to keep the loan well past that point, refinancing is likely worth it. If you might sell or refinance again sooner, it may not be.
Watch the term, not just the payment
Restarting a 30-year clock on a loan with 25 years left lowers the payment partly by stretching it out, which can raise the total you pay. This calculator compares the total cost from today under both loans so you can see the whole picture. Choosing a term close to your remaining term gives the cleanest comparison.
Example
You owe $320,000 at 7.25% with 28 years left (payment $2,227.70). Refinancing to 6.25% for 30 years cuts the payment to $1,970.30, saving $257.40 a month. With $6,000 in closing costs paid in cash, you break even after 24 months.
Frequently asked questions
How much does the rate need to drop to refinance?
There is no fixed rule. What matters is whether the monthly savings repay the closing costs before you are likely to move or refinance again. A small rate drop on a large balance can still be worth it.
Should I roll closing costs into the loan?
It avoids paying cash now but raises the balance and the interest you pay on those costs. Toggle the option above to compare both ways.
What about a cash-out refinance?
This calculator compares a rate-and-term refinance on the same balance. For a cash-out refinance, add the cash you take to the new loan amount by entering it as closing costs rolled into the loan.
Sources
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