Mortgage Refinance Break-Even: When Refinancing Pays Off
Calculate your refinance break-even point in months. Includes rate-and-term vs cash-out refinance comparison.
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Key Takeaways
- 1Break-even months = closing costs ÷ monthly payment savings.
- 2Rule of thumb: refinance when rate drops 0.75–1% or more.
- 3Resetting to a new 30-year term can cost more total interest.
- 4Cash-out refinance increases loan balance — use only for high-ROI improvements.
Refinancing only makes sense if you recoup closing costs before you sell or refinance again. The break-even calculation takes 30 seconds and can save you from a costly mistake.
Run your numbers in our refinance calculator.
Break-Even Formula
Closing costs ($5,000) ÷ monthly savings ($200) = 25 months to break even. Stay in the home 25+ more months and refinancing wins.
Include lost tax deductions and any extended loan term in your analysis.
Rate-and-Term vs Cash-Out
Rate-and-term: replace existing loan with better terms. Cash-out: borrow more than you owe and take the difference in cash.
Cash-out only makes sense for renovations that add value or paying off 20%+ credit card debt with a plan.
When NOT to Refinance
You plan to move within break-even period. You are extending a 22-year remaining term to 30 years. Savings are under $100/month.
Read the full when to refinance guide.
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