Refinance Break-Even Point Explained
Category: Refinancing
The break-even point is the number of months it takes for the monthly savings from a lower interest rate to equal the upfront costs of refinancing.
The Break-Even Formula
A simple way to estimate your break-even point is:
Months to Break Even = Total Closing Costs / Monthly Payment Savings
If refinancing costs $4,000 in closing fees and saves you $100 a month on your payment, your break-even point is 40 months. If you plan to stay in the home for longer than 40 months, the refinance may make sense. If you plan to move sooner, you could lose money on the transaction.
A More Accurate Approach
The simple formula ignores the fact that a new loan restarts your amortization schedule. A fuller comparison considers the modeled interest on the existing and new loans. The engine's Refinance Calculator compares these outcomes using the assumptions you enter.