Should you refinance?

Refinancing isn't free — you pay closing costs (typically 2-5% of the loan amount) in exchange for a lower rate or different terms. The break-even month is the point where your accumulated monthly savings exceed those upfront closing costs. Before that point, you're still in the hole from the refinance; after it, you're net ahead. If you plan to stay in the home, or keep the loan, beyond the break-even point, refinancing is a financial win — if you'll sell or refinance again before then, it likely wasn't worth the cost.

The calculation is straightforward in principle: closing costs divided by monthly payment savings gives you a rough break-even month. In practice it's a bit more nuanced because the new loan also resets your amortization schedule, which affects how much interest you pay over the remaining term — which brings us to the next point.

Here's the trap that catches a lot of people: if you're seven years into a 30-year mortgage and refinance into a new 30-year loan, you're not saving 23 years of payments — you're restarting the clock and committing to 30 more years of payments, even though you only had 23 left. Your monthly payment might drop because of the lower rate, but you could end up paying more total interest over the life of the loan if the new term is long enough.

The way around this is to refinance into a shorter term that roughly matches your remaining time horizon — refinancing from a 30-year loan with 23 years left into a new 23- or 25-year loan, rather than automatically restarting at 30. This calculator lets you compare both your monthly payment savings and your total interest cost so you can see whether a given refinance is actually a net win or just a smaller bill with a longer tail.

Refinancing tends to make sense when the rate drop is large enough to clear closing costs within a timeframe you're confident you'll stay in the home — generally a rate drop of at least 0.5-1 percentage point is the common threshold worth evaluating, though the exact number depends on your loan size and closing costs. It also makes sense if you're trying to drop PMI by reaching 20% equity, switch from an adjustable-rate to a fixed-rate loan for payment stability, or pull cash out for a specific need at a lower rate than other borrowing options would offer.

It generally doesn't make sense if you're planning to move within the break-even window, if the rate improvement is marginal, or if extending your loan term back out to 30 years would cost you more in total interest than you'd save monthly — which is exactly the scenario this calculator is built to catch.

Refinance closing costs typically include an origination fee, appraisal fee, title insurance, and various lender and recording fees — usually landing in the 2-5% of loan amount range, similar to a purchase. Some lenders offer “no-closing-cost” refinances, which usually means the costs are rolled into the loan balance or recovered through a slightly higher rate rather than actually eliminated. Always ask for the specific breakdown so you're comparing true costs, not just a marketing label.