Refinance break-even calculator
Closing costs divided by the payment saving is the number every lender quotes, and it is mostly wrong. This runs that shortcut next to a term-matched comparison and a discounted one.
Worked example — Term-matched, this refinance clears its costs by: $769. $412,000 balance at 7.125% refinanced to 6.875%, $9,500 in costs, discounted at 5%
Lender's pitch, late in loan: The exact scenario the copy walks through: a small rate drop that resets the clock, where the payback rule lies.
Advanced options 1
Is refinancing worth it if my new rate is only a quarter point lower?
On the default scenario, an 22-year-in loan refinanced at a 0.250-point lower rate prints a 26-month payback under the standard rule, but term-matched and discounted it takes month 234, 19.5 years and is worth $769 in present value. A small rate drop late in a loan is usually not worth the closing costs once the term is held constant.
How much do I need to gain back if I roll the closing costs into the loan?
Rolling $9,500 of closing costs into the new balance means nothing is paid at closing, but the costs are then financed at the new rate for the full term. On the default scenario that adds $12,967 of interest over the loan, more than the costs themselves. Nothing at closing is not the same as free.
Term-matched break-even by rate drop
Held at the default $412,000 balance and 268 months remaining, the discounted term-matched break-even month at each rate drop, computed from the same solver the calculator above runs.
| Rate drop | New rate | Break-even | Worth in present value |
|---|---|---|---|
| 0.25 pts | 6.875% | month 234, 19.5 years | $769 |
| 0.50 pts | 6.625% | month 91, 7.6 years | $10,937 |
| 0.75 pts | 6.375% | month 57, 4.8 years | $21,001 |
| 1.00 pts | 6.125% | month 42, 3.5 years | $30,961 |
| 1.50 pts | 5.625% | month 28, 2.3 years | $50,560 |
| 2.00 pts | 5.125% | month 21, 1.8 years | $69,720 |
The same refinance, three ways
Read the term-matched row first: it is the only comparison in which the rate is the only thing that changed.
| Comparison | Monthly payment | Break-even | Worth in present value |
|---|---|---|---|
| Stay with the loan you have | $3,076 | Not applicable | $0 |
| The payback rule | $2,707 | Month 26 | Not counted |
| Term-matched, 268 months | $3,012 | month 234, 19.5 years | $769 |
| Your proposed term, 360 months | $2,707 | month 28, 2.3 years | -$17,740 |
What we think
Never judge a refinance on the payment. Judge it on the term-matched present value, and treat the payment drop as a separate decision about cashflow that you are free to want, as long as you know you are paying for it. The rule of thumb worth keeping is not a rate drop threshold: it is that a refinance is worth doing when the term-matched present value clears the costs with room to spare, and that it is almost never worth doing late in a loan, because there are too few interest-heavy months left for a lower rate to work on. If you genuinely need the lower payment, take the longer term deliberately and put the difference somewhere. Do not let a payback number tell you it was free.
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Cash-out comparisons, points-versus-rate trade-offs, and a probability-weighted holding period are Pro features. The launch list sends one email at launch.