Refinance break-even
Does a lower rate actually save money once closing costs are paid?
SHIP'S INSTRUMENTS
Refinance break-even calculator
A lower rate is not automatically a win - closing costs have to be earned back first, and a longer term can add interest even while the payment falls. This calculator lays both loans side by side.
How it's calculated
- Both payments use the amortization formula on the same remaining balance: the current loan over the years you have left, the new loan over its full term.
- Break-even months = closing costs ÷ monthly savings. If the new payment is not lower, there is no break-even.
- Total interest is simulated month by month for each loan, and "net over the new term" is the monthly savings times the new term, minus closing costs. A warning appears when the new term is longer than what remains on the current loan.
Worked example
On a $280,000 balance, moving from 7.25% with 28 years left to 5.5% over 30 years with $4,000 in closing costs drops the payment from $1,949.24 to $1,589.81. That $359 a month recovers the closing costs in about a year, and total interest falls by roughly $82,600 even though the term is two years longer.
Frequently asked
What counts as closing costs?
Origination and application fees, appraisal, title search and insurance, recording fees, and any points you pay to buy down the rate. Your loan estimate lists them; the total is usually 2-5% of the balance.
Should I refinance if I might move soon?
Only if you will stay past the break-even point. If the calculator says 30 months and you expect to sell in two years, the refinance costs you money.
Why the warning about a longer term?
Resetting a loan with 20 years left to a fresh 30 years spreads the balance over more payments. The monthly figure drops, but you pay interest for a decade longer, which can erase the savings from the lower rate. Compare the total interest tiles, not just the payment.
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