Compare your current mortgage against a refinance and find the break-even point.
Refinancing replaces your current mortgage with a new loan, usually at a lower rate. The break-even point is the month when cumulative payment savings equal the closing costs you paid upfront. If you plan to stay in the home beyond that point, refinancing saves money. Resetting to a longer term reduces the monthly payment but can increase total interest paid — check the lifetime comparison when considering a 30-year refi on an existing 20-year loan.
Break-even months
Break-Even Months = Closing Costs ÷ (Current Payment − New Payment)
Estimates assume fixed rates and do not include escrow changes, PMI recalculation or tax deductibility of mortgage interest. Consult a mortgage professional.
The break-even point is when your cumulative monthly savings equal what you paid in closing costs. If you sell or refinance again before that date, you lose money on the deal. If you stay beyond it, every subsequent month is net positive.
Rolling costs in eliminates the upfront payment but adds to the principal you pay interest on for years. It often makes sense for buyers who are short on cash, but it increases the total cost and slightly raises the monthly payment.
It depends on your balance, term and closing costs. On a $400k loan with $5,000 in closing costs and a 0.5% reduction, the break-even is often under 18 months. Run the numbers for your specific situation.
Refinancing from a 25-year remaining term to a fresh 30-year term lowers the monthly payment but often increases total interest paid over the life of both loans — even at a lower rate. The 'Lifetime Interest Savings' figure in this calculator accounts for that difference.