Compare your current loan to a new refinance offer and see how many months it takes to break even.
Refinancing replaces your current mortgage with a new one, usually to get a lower interest rate or shorter term. The break-even point is the number of months it takes for your monthly savings to cover the closing costs of the new loan — after that point, refinancing is pure savings.
Monthly Payment = Balance × [r(1+r)^n] / [(1+r)^n - 1], where r is the monthly interest rate and n is the number of payments.
Break-Even (months) = Closing Costs ÷ Monthly Savings
A $250,000 balance at 7% with 25 years left refinanced to 5.75% over 30 years with $4,000 in closing costs typically lowers the monthly payment by a few hundred dollars, with a break-even point of well under two years.
You replace your existing mortgage with a new loan at better terms to reduce payments or total interest.
It compares remaining payments under the current loan versus the new loan, including closing costs.
The point where accumulated savings equal the upfront closing costs.