Entry № 20 · logged Oct 8, 2026Free, no sign-upMoney · Home
The refinance break-even point, exactly
Everything about a refinance offer collapses into one division. The numerator is what the new loan costs to open; the denominator is what it saves you each month. The answer is the month the refinance starts paying you back.
The formula
That is the whole calculation: $6,000 divided by $191 a month equals 31 months, or about 2 years and 7 months. Stay in the home past month 31 and every subsequent month is $191 you would not have kept. Move in month 20 and the refinance cost you money — $6,000 paid, $3,820 saved, a $2,180 loss.
Where the two inputs come from
Closing costs are what the lender charges to originate the new loan: origination fees, appraisal, title work, prepaid items. Freddie Mac estimates 3% to 6% of the loan balance; NerdWallet puts the average refinance near $5,000. Get your lender’s quote in writing — this is the number that decides everything.
Monthly savings is your current principal-and-interest payment minus the new one. The tool above computes both to the dollar from your actual balance, rate, and term. A common mistake is comparing the old payment against a quote on a longer term — restarting a 30-year loan after five years paid can make the payment drop while the loan costs $74,947 more in interest (on $300,000 at 6.5%). Always compare with the term held constant, or read the total interest line.
Reading the answer
| Rate drop | Break-even | Verdict |
|---|---|---|
| −0.5 pp | 62 months | Skip it — too far out to bank on |
| −1.0 pp | 31 months | Only if you stay — fair trade at ~3 years |
| −1.5 pp | 21 months | Worth a look — inside the safe band |
| −2.0 pp | 16 months | Worth a look — decisively |
Two years or less to break even is the safe band. Two to four years is a judgment call that depends entirely on whether you will still own the home. Beyond four years, the refinance is a bet on staying put that long — decline the bet.
Sources: the break-even formula is standard refinance math; the 3–6% closing-cost range is Freddie Mac’s estimate, and the ~$5,000 average is NerdWallet’s. All table values computed for a $300,000 balance, 25 years remaining, $6,000 closing costs.
Common questions Form RF-20
What is a good break-even point for a refinance?
Two years (24 months) or less is the safe band -- the costs repay themselves quickly. Between 24 and 48 months is a judgment call that depends on how long you will keep the home. Beyond 48 months, skip it.
Do closing costs include prepaid interest?
Lender quotes sometimes fold in prepaid interest and escrow reserves, which are not true costs of the loan -- they are money you would spend anyway. Ask for the quote without prepaid items when you compute the break-even.
What if I get a no-closing-cost refinance?
Then the break-even is zero months: every month’s savings is profit from day one. The catch is that the rate is usually higher -- about 0.25 points -- which costs roughly $14,134 over 25 years on $300,000 versus paying $6,000 up front.