How the break-even point is calculated
The break-even point is the closing costs divided by the monthly savings. If you plan to keep the home longer than that, the lower payment pays back the cost of refinancing.
Monthly savings vs lifetime savings
A lower payment does not always mean you pay less in total. Starting a new 30-year loan on a mortgage with 25 years left spreads the balance over more payments, which can raise total interest. The comparison table shows both views so you can judge the trade-off.
Example
Refinancing a $300,000 balance from 7.5% to 6.25% on a 30-year loan changes the payment from $2,162.20 to $1,847.15. That saves $315.05 a month, and $6,000 in closing costs are recovered in 1 year 8 months.
Frequently asked questions
What are typical refinance closing costs?
They often run 2% to 5% of the loan amount and include lender fees, appraisal, title insurance and recording fees. Ask lenders for a Loan Estimate to compare exact costs.
When does refinancing make sense?
Usually when the new rate is meaningfully lower, you plan to stay past the break-even point and the total cost over the time you keep the loan is lower.
Does refinancing restart my loan?
Yes. A refinance replaces your loan with a new one, so the term starts over. Choosing a term close to your remaining years keeps the payoff date similar.