Refinancing swaps your existing mortgage for a new one, usually to capture a lower rate, and the only question that matters is whether the monthly saving repays the closing costs before you sell, move, or refinance again. This calculator compares the payment on your current balance at the old rate against the same balance at a new rate over the years you have left, then divides the refinance costs by the monthly saving to give you a break-even month.
What counts as a worthwhile rate cut
A rate gap of roughly 0.75 to 1 percentage point is usually the threshold where refinancing starts to clear typical closing costs within two to three years on a mid-sized balance. Smaller gaps can still work on very large balances or when the lender waives most fees, and larger gaps are worth chasing even with a decade left on the loan.
Closing costs on a US refinance commonly run 2 to 5 percent of the loan amount, covering the appraisal, title work, origination fee and recording charges. A 300,000 refinance at the lower end of that range costs around 4,000 to 6,000, which is the number this calculator's break-even math is built to test against your monthly saving.
If the new rate is only a quarter point below the old one, the saving on a typical balance is often under 50 a month, and the break-even point can stretch past five years — long enough that moving house or rates falling further makes the refinance pointless before it pays for itself.
Three refinance scenarios, worked through
A 300,000 balance at 6.8% with 22 years left drops to 5.4%: the payment falls from about 2,193 to about 1,944, a saving of roughly 249 a month. Against 4,000 in refinance costs that breaks even in about 16 months, and over the remaining 22 years the net saving after costs comes to roughly 61,800.
A 275,000 balance at 7.25% with 20 years left drops to 5.75%: the payment falls from about 2,174 to about 1,931, saving about 243 a month. With 3,500 in costs the break-even lands around 14 months, and the lifetime saving after costs is roughly 54,800.
A 180,000 balance at 6.9% with 15 years left drops only to 6.6%: the payment falls from about 1,608 to about 1,578, a saving of just 30 a month. Against 2,800 in costs that break-even stretches past seven and a half years — on a 15-year remaining term, that is a thin margin for anything to go wrong before it pays off.
The trap of resetting the clock
The calculator holds the remaining term fixed on both sides, which is the correct comparison, but real refinance offers often come packaged as a fresh 30-year loan regardless of how many years you actually have left. Taking a new 30-year term against 22 years remaining lowers the monthly payment further, but it also restarts amortisation from the interest-heavy first years and can raise total interest paid even though the rate fell.
Before signing, ask the lender to quote the new loan over the same number of years you have left, not their default term, and compare that payment against what this calculator shows. If they can only offer a longer term, add up total interest over both loans rather than trusting the payment alone.
Where the break-even math stops being reliable
The formula assumes the refinance costs are paid upfront in cash and the saving is constant every month, which holds for a standard fixed-to-fixed refinance but breaks down for a cash-out refinance, where a larger new balance can wipe out the rate benefit entirely. It also assumes you keep the loan at least to the break-even month; sell or refinance again before then and the deal cost you money on paper even with a lower rate.
It ignores tax treatment of points and fees, which in the US can sometimes be deducted or amortised depending on whether they are treated as acquisition debt, and it ignores any change in mortgage insurance — dropping below 80% loan-to-value on the new appraisal can remove a PMI premium that this calculator does not touch.
Rolling the closing costs into the new loan rather than paying cash changes the maths too: the break-even period effectively vanishes but the loan balance and total interest both rise, so a no-cost-sounding refinance is rarely truly free.
Jurisdiction and timing notes
In the US, most conventional refinances carry a title search and appraisal that add several weeks to closing, and rates quoted today are not locked until you formally apply, so re-run this comparison with the actual locked rate before committing.
In the UK, a 'remortgage' at the end of a fixed-rate period is closer to a rate reset than a US-style refinance: many lenders charge little or nothing in fees, but an early repayment charge applies if you leave the current fixed deal before its end date, and that charge belongs in the costs field here alongside any product fee.
Rates move week to week with the broader bond market, so a break-even calculation done a month ago on a shopped-around quote can be stale; check the current rate on your specific loan type before deciding.
Frequently asked questions
- How much does the rate need to drop to make refinancing worth it?
- There is no fixed rule, but a cut of around 0.75 to 1 percentage point on a typical six-figure balance usually clears standard closing costs within two to three years. On a 300,000 balance dropping from 6.8% to 5.4% (1.4 points), the break-even was about 16 months in the example above; a 0.3-point cut on a smaller balance can take five years or more.
- What is a good break-even period for a mortgage refinance?
- Two to three years is a common benchmark, because most homeowners stay in a house or keep a loan at least that long. If your break-even is inside two years and you plan to stay put, the refinance is usually a clear win; past four or five years it depends heavily on how confident you are that you will not move or sell first.
- Should I roll closing costs into the new loan instead of paying cash?
- Rolling costs in avoids an upfront outlay but increases the loan balance and the total interest paid over the term, so it removes the traditional break-even wait at the cost of a permanently larger balance. Compare the total-interest figures both ways rather than judging by the monthly payment alone.
- Does refinancing to a new 30-year term always cost more overall?
- Not always, but it often does if you had already paid down several years of a 30-year loan. Resetting the clock restarts the interest-heavy early years of amortisation, so ask for a quote matched to your remaining term and compare total interest, not just the monthly payment, before deciding.
- Is a cash-out refinance evaluated the same way as a rate-and-term refinance?
- No. A cash-out refinance increases the balance, so even a lower rate can raise the monthly payment or the total interest paid, and the simple break-even comparison in this calculator understates the true cost. Run the new, larger balance through a standalone payment calculator to see the real effect.
- Does a UK remortgage have the same break-even logic as a US refinance?
- The mechanics are similar, but a UK remortgage often carries an early repayment charge if you leave a fixed deal early, rather than the appraisal and title fees typical of a US refinance. Add that charge to the costs field, since it plays the same role as US closing costs in the break-even calculation.
Sources
- Freddie Mac Primary Mortgage Market Survey — Weekly US average 30-year and 15-year fixed mortgage rates, used to gauge typical current-versus-new rate gaps (data through 2025).
- Consumer Financial Protection Bureau — refinancing guidance — Explains typical US refinance closing costs, break-even calculations and cash-out risks (guidance current 2025).