Refi Break Even Calculator

Understanding when your home refinance will break even is crucial for making an informed financial decision. This calculator helps you determine the exact point at which the savings from your new mortgage outweigh the costs of refinancing.

What is Refi Break Even?

Refi break even refers to the point in time when the cumulative savings from your new mortgage loan begin to outweigh the costs of refinancing. These costs typically include closing costs, appraisal fees, and other upfront expenses.

The break-even point is calculated by comparing the interest savings from your new loan with the total refinance costs. Once the savings exceed the costs, you've reached the break-even point.

For example, if you refinance for a lower interest rate but pay $5,000 in closing costs, the break-even point is the month when your savings from the lower rate equal $5,000.

How to Use This Calculator

Enter your current mortgage balance
Input your current interest rate
Enter your new interest rate
Provide the total refinance costs
Click "Calculate" to see your break-even point

The calculator will show you how many months it will take for your savings to cover the refinance costs, along with a chart showing your savings progression.

Formula Used

The break-even point (in months) is calculated using the following formula:

Break Even Months = (Refinance Costs) / (Monthly Savings)

Where Monthly Savings = (Current Monthly Payment - New Monthly Payment)

This formula assumes you're comparing two loans with the same term length. The calculation shows when the cumulative savings from the lower interest rate will equal the total refinance costs.

Worked Example

Let's say you have a $200,000 mortgage with a 5% interest rate and monthly payments of $1,264.71. You refinance to a 4% rate with monthly payments of $1,111.46, and pay $5,000 in closing costs.

Monthly savings = $1,264.71 - $1,111.46 = $153.25

Break-even months = $5,000 / $153.25 ≈ 32.6 months (2 years and 8 months)

This means after about 2 years and 8 months, the savings from your lower interest rate will have covered the $5,000 in refinance costs.

How to Interpret Results

The break-even point is just one factor to consider when deciding whether to refinance. Other important considerations include:

The length of your mortgage term
Your expected home equity growth
Changes in interest rates
Your personal financial situation

If your break-even point is within a few years, refinancing may be a good financial move. If it takes much longer, you might want to wait for better market conditions.

Frequently Asked Questions

What is the average refinance break-even period?

The average break-even period for a refinance is typically between 12 and 36 months, depending on interest rate differences and closing costs.

Does this calculator account for property taxes and insurance?

No, this calculator focuses on interest savings and closing costs. Property taxes and insurance are not included in the calculation.

What if my mortgage term changes when I refinance?

This calculator assumes the same term length for both loans. If you're changing terms, you should adjust the calculation accordingly.

Is it always better to refinance when the break-even point is reached?

Not necessarily. You should also consider your financial goals, market conditions, and personal circumstances before refinancing.