What is the break-even point?

Closing costs divided by the monthly saving — how long you have to keep the loan for the refinance to have paid for itself. Under two years is comfortable, over five is a bet on staying put. It is the first question to ask and it is not the only one.

Why can a lower rate cost more?

Because a new 30-year term restarts the amortisation. On the example above the payment falls by $263 and the total paid rises by $19,437, because four extra years of interest outweigh the lower rate. Lower monthly and cheaper overall are different things, and lenders advertise the first.

How much are closing costs?

Typically two to five per cent of the loan — origination, appraisal, title, recording and prepaid items. A "no-cost" refinance does not remove them; it rolls them into the balance or the rate, so you pay them with interest over the life of the loan.

What rate drop makes it worth it?

The old rule of thumb was one per cent, and it is a bad rule: on a large balance a quarter point can pay back in two years, while on a small one a full point may never. Run the arithmetic on your own balance and costs — that is the whole reason this page exists.

Refinance Calculator

With current balance 320000 usd, current rate 7.25 percent, years left on the current loan 26, new rate 6.25 percent and 2 more fields, refinance comes to $311.44 — saved each month. It is reached in 8 steps, the last of which is 2281.7378 - 1970.295, and each one is printed on the page with its numbers filled in. The formula is the one published by 12 CFR part 1026 (Regulation Z), not an approximation fitted to it.

What refinancing saves each month, what it costs to do, and how long you have to stay for it to have been worth it.

Formula and sources checked 27 August 2026 · How we check

Current balance 320000, Current rate 7.25, Years left on the current loan 26, New rate 6.25

$311.44

Saved each month for the example below. Editing a field recomputes the calculator below; this figure holds the answer the page was loaded with.

It is written into the HTML rather than drawn by a script, so a search engine reading this page without running JavaScript still finds an answer.

Current balanceusdCurrent ratepercentYears left on the current loanNew ratepercentNew term, yearsClosing costsusdTwo to five per cent of the loan is typical.

Saved each month

$311.44

Current payment: 320000 * 0.0060417 / (1 - pow(1 + 0.0060417, -312))$2,282
New payment: (320000 + 0) * 0.0052083 / (1 - pow(1 + 0.0052083, -360))$1,970
Saved each month: 2281.7378 - 1970.295$311.44
Months to recover the closing costs: 6000 / 311.4427619.265
Total left to pay on the current loan: 2281.7378 * 312$711,902
Total on the new loan, plus costs: 1970.295 * 360 + 6000$715,306
Difference over the whole term: 711902.19 - 715306.21-$3,404
Years added to the payoff: 30 - 264

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Worked example

Refinancing $320,000 from 7.25% with 26 years left into a new 30-year at 6.25% saves $311 a month and pays back the $6,000 of costs in 19 months. But it adds four years to the loan, and over the full term it costs $3,404 more than staying put — the monthly saving and the lifetime cost point in opposite directions.

How to work it out yourself

1.Compare against the years left on your current loan, not against its original term. Refinancing a 26-year remainder into a fresh 30 restarts the clock, and that is where the cost hides.
2.Read both lines. The break-even says whether the fees pay back; the lifetime difference says whether the deal is actually cheaper.
3.Match the terms to compare rates honestly: a new 26-year loan at the lower rate is the like-for-like comparison, and most lenders will write one.

The formula

Current payment320000 * 0.0060417 / (1 - pow(1 + 0.0060417, -312))
New payment(320000 + 0) * 0.0052083 / (1 - pow(1 + 0.0052083, -360))
Saved each month2281.7378 - 1970.295
Months to recover the closing costs6000 / 311.44276
Total left to pay on the current loan2281.7378 * 312
Total on the new loan, plus costs1970.295 * 360 + 6000
Difference over the whole term711902.19 - 715306.21
Years added to the payoff30 - 26

Source: 12 CFR part 1026 (Regulation Z) — Truth in Lending

Questions people actually ask

What is the break-even point?: Closing costs divided by the monthly saving — how long you have to keep the loan for the refinance to have paid for itself. Under two years is comfortable, over five is a bet on staying put. It is the first question to ask and it is not the only one.
Why can a lower rate cost more?: Because a new 30-year term restarts the amortisation. On the example above the payment falls by $263 and the total paid rises by $19,437, because four extra years of interest outweigh the lower rate. Lower monthly and cheaper overall are different things, and lenders advertise the first.
How much are closing costs?: Typically two to five per cent of the loan — origination, appraisal, title, recording and prepaid items. A "no-cost" refinance does not remove them; it rolls them into the balance or the rate, so you pay them with interest over the life of the loan.
What rate drop makes it worth it?: The old rule of thumb was one per cent, and it is a bad rule: on a large balance a quarter point can pay back in two years, while on a small one a full point may never. Run the arithmetic on your own balance and costs — that is the whole reason this page exists.

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