Refinance Break-Even Calculator

Refinancing a mortgage you are several years into almost always restarts the clock at thirty years. Lenders quote it that way because it produces the lowest payment and the most attractive-looking comparison.

Part of that lower payment is the rate. The rest is simply spreading the balance over more years, and that part is not a saving at all — it is a deferral that costs additional interest.

Someone eight years into a 30-year loan who refinances into a fresh 30 has just added eight years of payments. Even at a lower rate, the total interest can rise.

The fix is to ask for the remaining term. Refinancing 22 years into a 22-year loan captures the rate improvement without the stretch. Most lenders will quote custom terms and very few offer them unprompted, because the payment looks worse.

The alternative, if only a 30-year is available, is to take it and keep paying the old amount. The extra goes to principal and you finish on roughly the original schedule with the lower rate.

This is why the total-cost comparison here runs both loans over the same number of years. Comparing 28 years of one against 30 of the other counts the stretch as a benefit, which is precisely backwards.

The escrow distinction catches people out in both directions. It makes the cash-to-close look worse than the true cost, and lenders advertising low closing costs sometimes exclude it to look better still.

Origination fee —

0.5% to 1% of the loan, charged by the lender for making it. Often negotiable, particularly against a competing offer.

Appraisal —

$400 to $800. Sometimes waived on a straightforward refinance with strong equity.

Title insurance and search —

frequently the largest line. A reissue rate is often available if your existing policy is recent, and it is rarely offered unless you ask.

Recording and transfer —

government charges, not negotiable.

Discount points —

optional prepaid interest — 1% of the loan buys roughly a quarter-point off the rate. Worth it only if you stay well past their own break-even, which is usually longer than the refinance's.

Prepaid escrow —

not a cost. You are funding a new escrow account and your old one is refunded, so this should not enter the break-even calculation at all — though it does inflate the cash you need at closing.

The old rule that you need a full point of rate improvement is obsolete. It came from an era of higher balances relative to costs and it ignores how long you plan to stay, which is the variable that actually decides.

The honest test is simply whether your break-even is comfortably shorter than your remaining time in the home. On a large balance, a quarter-point drop can break even in two years and be worth doing. On a small balance, a full point may take six years and not be.

There are also good reasons to refinance that have nothing to do with the rate. Removing mortgage insurance once you reach 20% equity can save more than a rate change. Moving from an adjustable to a fixed rate buys certainty. Removing an ex-spouse from the loan after a divorce is a legal necessity rather than a financial optimisation.

And reasons not to: if you plan to move within the break-even window, if your credit has worsened since the original loan, or if you are close to paying it off — refinancing the last few years of a mortgage restarts an amortisation schedule that is finally working in your favour.

One structural point worth understanding: early mortgage payments are mostly interest and later ones mostly principal. Refinancing resets you to the interest-heavy start of a new schedule. That is not a reason never to refinance, but it is a real cost that the payment comparison does not show.