How it works
Refinancing replaces your mortgage with a new one, ideally at a lower rate. You pay closing costs to do it, so the question is how quickly the lower payment earns them back.
Break-even (months) = closing costs ÷ monthly savings
The calculator also compares the total you'd pay from here on under each loan, because a lower payment isn't always a saving: starting a new 30-year loan on a mortgage that had 27 years left adds three more years of payments.
Worked example
You owe $280,000 at 7.5% with 27 years left: $2,018.05 a month. Refinancing into a new 30-year loan at 6.25% drops it to $1,724.01, saving $294.05 a month. With $5,000 of closing costs, you break even after 18 months, and pay $28,207 less in total.
Choose a 15-year loan at 5.75% instead and the payment rises to $2,325.15, but you'd pay $230,323 less than keeping your current mortgage, and be debt-free 12 years sooner.
Things to know
- Stay past break-even. If you might sell or move before then, refinancing can cost more than it saves.
- "No-cost" isn't free. The lender covers closing costs by charging a higher rate or adding them to the loan.
- Points buy a lower rate. Paying points upfront lowers the rate; it pays off only if you keep the loan long enough.
- Compare Loan Estimates from several lenders on the same day, since rates change daily.
Questions people ask
How much lower should the rate be to refinance?
There's no fixed rule; it depends on your balance, closing costs and how long you'll stay. A quick break-even, often cited as around two years or less, is a good sign. Try your own numbers above.
What about taxes and insurance?
They stay roughly the same after a refinance, so this calculator compares principal and interest only. See the full payment in the mortgage calculator.
Sources
- Consumer Financial Protection Bureau: is there such a thing as a no-cost loan or refinancing?
- Consumer Financial Protection Bureau: how to use lender credits and points
- Freddie Mac: Primary Mortgage Market Survey (weekly average rates)
Reviewed September 26, 2026 by The Dollars World team. How we build and check our calculators · Our data and formulas. This is general information, not financial advice.