A lower payment only pays off if you keep the loan long enough to recover the closing costs.
How it works
Break-even months = closing costs ÷ monthly saving
The calculator works out both principal and interest payments from the balance, rates and terms, then shows the monthly saving, how long the costs take to recover, and the total interest on each loan, so a longer new term that costs more overall is easy to spot.
Keep in mind
- Restarting a 30-year term lowers the payment partly by stretching the loan; the total interest paid can still rise.
- Costs rolled into the loan are still costs; include them.
Questions
What is a good break-even point for a refinance?
Shorter is better. Under about three years is comfortable for most people; if you may move or refinance again sooner than the break-even point, the costs may not be recovered.
Should I count costs added to the loan?
Yes. Rolling costs into the balance avoids paying them at closing but you still pay them, with interest.
Does a lower payment always mean a refinance saves money?
No. Starting a new 30-year term on a loan with 22 years left can lower the payment while raising the total interest. The lifetime interest row shows that difference. See also: Cash-out refinance calculator.
