How to Calculate Your Refinance Break-Even Point
Updated November 8, 2026
A refinance offer usually leads with a lower monthly payment. That number alone cannot tell you whether the deal is good. Two calculations give you a much clearer answer: the break-even point and the lifetime cost.
Step 1: Find the break-even point
Suppose you owe $300,000 at 7.25% with 26 years left, for a payment of $2,139. A lender offers 6.25% with $6,000 of closing costs. On a new 30-year loan, your payment falls to $1,847, saving $292 a month.
If you stay in the home for more than 21 months, the monthly savings have repaid your costs.
Step 2: Check the lifetime cost
This is the step many borrowers miss. A new 30-year loan adds four years to the 26 you had left, and those extra years carry interest. Compare the same example with two different terms:
| Keep current loan | New 30-year | New 26-year | |
|---|---|---|---|
| Rate | 7.25% | 6.25% | 6.25% |
| Monthly payment | $2,139 | $1,847 | $1,948 |
| Total future interest | $367,408 | $364,975 | $307,661 |
| Break-even | - | 21 months | 32 months |
| Lifetime result after $6,000 costs | - | $3,567 worse | $53,747 better |
Same rate, very different outcomes. The 30-year option looks best month to month, yet over the full term it costs slightly more than doing nothing. Matching the term to your remaining years keeps most of the benefit. Of course, if you will sell long before the end of the term, lifetime figures matter less, and break-even matters more.
Other things that change the math
- Rolling in costs. Adding closing costs to the loan means no cash upfront, but you pay interest on them for years.
- PMI. If refinancing removes PMI, add that amount to your monthly savings. If a new loan adds it, subtract it.
- Cash-out. Borrowing more raises the balance, so a lower payment is less likely, and the money is secured by your home.
- Investing the savings. If you take the lower payment and truly invest the difference, the result might beat the comparison above, but that is not guaranteed.
Questions to ask a lender
- What are the total closing costs, line by line?
- Are points included in this rate?
- Can I choose a term that matches the time left on my loan?
- Does my current loan have a prepayment penalty?
Get Loan Estimates from more than one lender on the same day so that you can compare them fairly.
Try the free Refinance Calculator
This article is general information, not financial, tax, legal or insurance advice. Figures are illustrative examples.