| Scenario | Balance | Current APR | New APR | Closing Costs | Points | Monthly Savings | Break-even (months) |
|---|---|---|---|---|---|---|---|
| Typical refinance | $200,000 | 7.250% | 6.250% | $4,500 | 0.500% | $132.40 | 38 |
| Lower fees | $180,000 | 7.000% | 6.125% | $2,500 | 0.000% | $106.10 | 24 |
| Cash-out refinance | $240,000 | 7.500% | 6.500% | $5,800 | 0.750% | $145.70 | 47 |
Values are illustrative and will differ based on term and financed costs.
Monthly principal-and-interest payment uses the standard amortization formula:
- L is the loan amount (principal).
- r is the monthly rate (APR ÷ 12).
- n is the number of monthly payments.
- Upfront costs = closing costs + points not financed.
- Break-even month ≈ upfront costs ÷ monthly savings.
- We also compute break-even via cumulative monthly savings for accuracy.
- Enter your current remaining balance, APR, and remaining term.
- If you know your payment, enable Override and enter it.
- Enter the new APR, new term, and any cash-out amount.
- Add closing costs and points, then choose whether to finance them.
- Select whether to include PMI and escrow in monthly savings.
- Set your expected time in home to see net savings.
- Press Calculate to view results above the form instantly.
Payment Gap and True Savings
Break-even happens when monthly savings repay the cash you spend today. Compute savings as current total payment minus new total payment, including selected PMI and escrow. Example: current $1,650 and new $1,520 creates $130 savings. If upfront costs are $3,900, the simple break-even estimate is 30 months ($3,900 ÷ $130), before considering financed fees. Your savings must stay positive for payback.
Closing Costs and Points Impact
Upfront costs usually include lender fees, appraisal, title, recording, and prepaid items. Points are prepaid interest, often 0.25% to 1.00% of the base loan. On $200,000, 0.75% points cost $1,500. If you finance $4,500 costs, the new principal rises, which raises the payment and reduces savings, pushing break-even later. Some borrowers pay costs upfront to keep balances smaller.
Break-even Month and Date Interpretation
The calculator also checks break-even by cumulative month tracking. It starts at negative upfront costs, then adds savings each month, so timing is precise even when you finance some fees. Break-even is the first month where cumulative savings reach zero. If monthly savings are negative, the curve keeps falling and the result shows not reached, signaling the refinance is costlier. The table marks the first crossing.
Horizon Analysis and Decision Fit
Net savings depends on how long you keep the loan. Over a 7-year horizon (84 months), net savings equals savings times 84 minus upfront costs. Using $130 savings and $3,900 upfront, net savings are $7,020. If you expect to move in 24 months, the same case produces -$780, so refinancing would not recover costs before selling. Short horizons favor lower fees.
Practical Risk Checks
Use the graph to compare cumulative total costs: current cost is payment times months, while new cost adds upfront costs plus the new payment stream. Keep inputs consistent; include escrow only if you want cashflow comparison. Watch term resets: extending from 20 to 30 years can lower payment but increase lifetime interest. Extra principal payments, rate locks, and future moves can change results. Compare interest totals too, because low payments can hide interest.
What does the break-even month represent?
It is the first month when cumulative savings offset the upfront costs you paid. After that point, the refinance has recovered its costs under your assumptions.
Should I include escrow in the savings comparison?
Escrow affects monthly cashflow, but it is not interest. Include it if you want a payment-based comparison. Exclude it if you only want loan payment and fee savings.
What if my monthly savings are negative?
If monthly savings are zero or negative, the tool shows break-even as not reached. That means the refinance does not repay its costs within the modeled period.
How are discount points treated?
Points are a percentage of the base new loan amount. Paying points upfront raises upfront costs; financing points increases the new principal and can reduce monthly savings.
Does this include taxes or deductions?
No. The results do not model tax deductions, home value changes, or rate resets. Use the calculator for planning, then confirm details with your lender and advisor.
Can I test different time horizons?
Yes. Change the expected time-in-home input to test different horizons. Compare net savings, break-even timing, and interest totals across scenarios before deciding.