Housing & property
Refinance break-even: Definition, Formula and Example
A simple refinance break-even is the time for assumed payment savings to recover refinancing costs; a full economic comparison also considers balances and cash-flow timing.
Scope: General financial concept; examples are hypothetical.
Other names and related labels: Refinancing cost recovery; Closing-cost break-even.
How it works
The old and new loans may have different remaining terms, principal amounts and fee treatment. Lowering the payment by restarting a long term can increase lifetime interest. Cash-out proceeds are new borrowing rather than free savings.
Simple cost-recovery months = included refinancing costs / positive monthly payment reduction
If savings are zero or negative, this simple recovery measure has no positive finite result. It excludes the value of money over time and balance differences.
$2,400 of costs and $100 monthly savings
Assume costs are paid upfront and payment savings stay unchanged.
- Monthly saving: $1,500 − $1,400 = $100.
- Simple break-even: $2,400/$100 = 24 months.
The payment-based cost recovery is 24 months, not proof of an overall financial gain.
No cash-out, tax, discounting or payment changes; compare remaining principal separately.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
Payment recovery is narrower than being better off
Compare the cost of keeping the old loan against the new loan over your likely holding period, including remaining balances. Financed fees accrue interest; refundable escrow funding should not automatically be treated like a lender fee.
Explore with a calculator
- Refinance Calculator
Inspect the labeled simple break-even, fees and future interest comparison.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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