Mortgage Refinance Break Even Calculator
Compare equal balance mortgage payments, estimate simple recovery of upfront costs, and review modeled interest over the shared remaining term.
Earlier editorial review
- Reviewed
- 2026-09-21
- Methodology
- 1.1
Sources
How the refinance comparison works
The calculator compares two fixed rate loans with the same starting balance and remaining term. Each nominal annual interest rate is divided by 12 to get a monthly rate. The payment formula assumes a level payment at the end of every month.
Monthly savings equal the current payment minus the new payment. Total interest is the sum of modeled payments over the shared term minus the starting balance. Net lifetime savings equal the difference in total interest minus the closing costs paid upfront.
Simple payback divides upfront closing costs by positive monthly savings. It can be a fractional number of months and does not mark the date of a particular payment. If monthly savings are zero or negative, there is no payback period. If payback exceeds the shared term, the costs are not recovered within that modeled term.
Enter the same unpaid balance and remaining term for both loans. Treat closing costs as cash paid upfront. A new loan with a different balance or maturity needs a separate comparison.
Step by step
- Enter the current unpaid balance, both nominal annual interest rates, the remaining term, and upfront closing costs.
- Compare the modeled monthly payments, monthly difference, interest over the shared term, and simple payback period.
- Check whether the payback period is shorter than the time you expect to keep the loan. The result does not include the time value of monthly savings.
Worked example
Example inputs: a 250,000 USD balance, 25 years remaining, a current nominal annual rate of 6.5%, a new rate of 5%, and 5,000 USD in upfront closing costs.
The modeled payments are 1,688.02 USD and 1,461.48 USD per month, a difference of 226.54 USD. Simple payback is 22.07 months. Total interest is 256,405.37 USD on the current loan and 188,442.53 USD on the new loan. After upfront costs, modeled lifetime savings are 62,962.84 USD.
When to use this calculator
Use this comparison for a written fixed rate refinance offer when the proposed loan has the same balance and remaining term as the current loan. Enter the quoted nominal annual rates and upfront closing costs.
Use a different cash flow model for cash out refinancing, financed costs, a changed term, adjustable rates, mortgage insurance changes, or tax effects. Confirm the details against the lender’s disclosures.
Common input errors
Do not compare the old loan term with a new longer term and treat the lower payment as pure savings. A longer term changes the number of payments and total interest. This calculator requires the same remaining term for both loans.
Enter closing costs paid upfront, not costs added to the new principal. Review the estimate because prepaid interest, taxes, insurance, and escrow funding may be treated differently from transaction charges.
Formula
Monthly rate r = nominal annual rate (%) ÷ 100 ÷ 12
Monthly payment = balance × r ÷ [1 − (1 + r)^−months], when r > 0
Monthly payment = balance ÷ months, when r = 0
Monthly savings = current payment − new payment
Simple payback months = upfront closing costs ÷ monthly savings, when monthly savings > 0
Net lifetime savings = current total interest − new total interest − upfront closing costs
An input of 6.5 means 6.5%; the monthly decimal rate is 6.5 ÷ 100 ÷ 12. Both loans use the same balance and whole number of remaining months. Rates are nominal annual rates, not APR values with fees included. Payments occur at month end. Closing costs are paid once upfront and are not financed.
Model limits and assumptions
This model compares fixed rate, fully amortizing loans with the same starting balance and same remaining term. It divides each nominal annual interest rate by 12 and assumes payments at each month end. Closing costs are paid upfront and are not added to the new loan balance. The payback period is a simple, undiscounted fraction of months. The model excludes a changed term, financed fees, discount points, lender credits, escrow deposits, prepaid taxes or insurance, mortgage insurance, prepayment penalties, tax effects, and the time value of savings. It does not reproduce a lender’s payment rounding or complete offer disclosures.
Key terms
- Monthly loan payment
- A fixed payment that covers principal and interest each month over the remaining term. This model assumes payments occur at the end of each month.
- Monthly payment difference
- The current monthly payment minus the new monthly payment, using the same balance and remaining term for both loans.
- Simple payback period
- Upfront closing costs divided by positive monthly payment savings. It is a simple fraction of months, not a payment date or discounted cash flow result.
Related mortgage tools
Use Mortgage Overpayment to compare keeping the current loan and paying extra principal. It uses a different cash flow because an extra payment reduces the balance instead of paying refinance costs.
Use Rent versus Buy to examine a possible move, or Home Affordability for a broader housing budget. A lender’s Loan Estimate can provide offer specific charges for this comparison.
FAQ
What does the break even period mean here?
It is the upfront closing cost divided by positive monthly payment savings. The result is a simple, undiscounted fraction of months, not a specific payment date. It does not account for interest you could earn on the cash used for costs.
Why must both loans use the same balance and term?
Holding the starting balance and remaining term constant isolates the effect of the entered rates and upfront costs. A new loan with financed fees, cash out, or a longer term changes the comparison and requires modeling those terms separately.
What if the new monthly payment is not lower?
Monthly savings are zero or negative, so there is no positive payback period. Closing costs cannot be recovered from monthly payment reductions in this model.
Are closing costs included in the new loan balance?
No. Enter costs paid upfront. They are subtracted once from the modeled interest reduction when calculating net lifetime savings. If costs are added to principal, this equal balance comparison no longer represents the offer.
What if payback takes longer than the remaining term?
The calculator shows the simple payback month and marks that it exceeds the modeled term. Under these assumptions, upfront costs are not recovered before the modeled loan ends.
Related tools
Mortgage Overpayment compares extra principal payments with the current loan schedule. Rent versus Buy models a move between housing choices, and Home Affordability estimates a broader purchase budget. These tools use different cash flows and answer separate questions.