Loan Refinance Break-Even Calculator
Use this refinance break-even calculator to see your monthly saving, how many months to recover closing costs, and the total saving over your loan's life.
What it does
The Loan Refinance Break-Even Calculator compares your current loan payment with the payment on a new loan at a lower rate, then shows how many months of saving it takes to recover the refinancing costs.
Data sources & parameters
This calculator uses standard financial formulas and runs entirely in your browser. It needs no external rate data — your result is computed only from the values you enter above.
We always strive to use the latest data for every variable so our results and reports are as accurate as possible. Even so, errors are possible — you should not rely on this tool or its report alone, and we accept no liability for any decision made based on it.
The formula
monthly_saving = pay_old − pay_new; break-even months = closing_costs ÷ monthly_saving; where pay = balance × i ÷ (1 − (1 + i)^−n)
How it works
It amortises the same remaining balance over the same remaining term at both the old and new rates, subtracts the two monthly payments to find your monthly saving, and divides the closing costs by that saving to find the break-even point.
Where it is used
- Deciding whether refinancing a mortgage or loan is worth the fees
- Checking how long you must keep the loan to come out ahead
- Comparing offers with different rates and closing costs
Worked example
A borrower with $250,000.00 left over 25 years refinances from 6.5% to 5% for $4,000.00 in costs. The payment drops by … a month, the costs are recovered in … months, and the move saves … over the life of the loan.
What the refinance break-even calculator does
A lower interest rate looks attractive, but refinancing has upfront fees, and they only make sense if the lower monthly payment saves more than they cost. The loan refinance break-even calculator works out how long that takes.
You enter your current balance, your current and new interest rates, the remaining term, and the total cost of refinancing. The tool shows how much you save each month, how many months it takes to recover the costs, and how much you save over the remaining life of the loan.
How the break-even point works
The break-even point is the month your accumulated savings equal what you paid to refinance. Until then you are still paying back the closing costs out of your savings; after it, every payment is cheaper than it would have been on the old loan.
The calculator amortises the same remaining balance over the same remaining term twice, once at your old rate and once at your new rate. The old payment minus the new one is your monthly saving, and the total closing costs divided by that saving is the number of months until the refinance pays for itself.
If refinancing saves you 200 a month and costs 4,000 to arrange, you break even after 20 months. Keep the loan longer and you are ahead; give it up sooner and you lose money on the deal.
Why break-even is the right test
A drop from 6.5% to 5% sounds clearly good, but the rate alone ignores how much the fees are and how long you will keep the loan. The break-even point combines both. A refinance that breaks even in 14 months is almost always worth doing, because most people keep a loan far longer. One that breaks even in 70 months needs closer thought: you might sell the property, move, receive a windfall and repay early, or refinance again before then, and the deal would cost you money.
How to use the calculator
- Enter your current outstanding loan balance.
- Enter the interest rate you are paying now.
- Enter the new rate you have been offered.
- Enter the number of years left on the loan.
- Enter the total closing or refinancing costs.
The tool shows your monthly saving, the break-even point in months, and the lifetime saving, with a bar chart comparing the old and new monthly payments.
Raise the closing costs to see how a more expensive deal pushes the break-even further out. Lower the new rate to see how a bigger rate cut brings it forward. Shorten the remaining term to see how the same rate cut saves less on a loan closer to the end.
Reading the three results
- The monthly saving is how much lighter each payment becomes.
- Break-even months is how long you must stay in the loan before the refinance stops being a loss. Compare it with how long you realistically expect to keep the loan.
- The lifetime saving is the total you save over the full remaining term after the costs are paid back, realised in full only if you keep the loan to the end.
A refinance that scores well on all three is a straightforward win. One with a large lifetime saving but a distant break-even is a bet that you will stay put, so weigh it against your own plans.
Common mistakes
- Forgetting the fees. Comparing only the two rates ignores the upfront cost that makes break-even matter. Include the full closing costs.
- Assuming you will keep the loan forever. If you are likely to move or repay early, the break-even point matters far more than the lifetime figure.
- Ignoring an early-repayment penalty. A fee for paying off the existing loan ahead of schedule is part of the cost of refinancing and belongs in the closing-costs box.
- Extending the term to lower the payment. A lower monthly payment achieved by stretching the loan can hide a higher total interest bill. This tool holds the term constant so you compare like with like.
Once you know the break-even point, the question is whether you expect to keep the loan longer than that. If yes, and the lifetime saving is meaningful, refinancing is likely sound. If no, a lower rate alone does not justify the cost. Use the tool to compare several offers and see how sensitive the outcome is to the fees.
This article is general information only and is not financial advice.
About This Refinance Break-Even Calculator
Use this refinance break-even calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.
Frequently asked questions
What is the refinancing break-even point?
How does this calculator work out the break-even?
Should I always refinance if the rate is lower?
What counts as closing or refinancing costs?
Does a longer new term change the picture?
Is my data kept private?
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