Break-even in 11 months
When refinancing makes sense: the break-even analysis
Refinance when the new rate is at least 0.75-1% below your current rate, your break-even on closing costs is shorter than how long you plan to stay in the home, and you don't reset the loan term to a longer one (which can negate interest savings). On a $300,000 mortgage, a 1% rate drop typically saves $40,000-$60,000 over the loan life.
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Try calculatorKey takeaways
04 · ideas- Break-even = closing costs ÷ monthly savings. Keep the loan beyond that = net win
- Refinancing resets amortization — you might pay more total even at a lower rate
- Cash-out refinancing converts equity to debt — understand the true cost
- Rate reduction of 0.5% typically breaks even in 18–30 months
Refinancing replaces your current mortgage with a new one, usually at a lower rate. The cost: closing costs ($2,000–$6,000 typically). The benefit: lower monthly payments and less interest paid.
The break-even calculation:
Break-even = Closing costs ÷ Monthly savings
Example: $3,000 closing costs, saving $150/month → break-even = 20 months
If you plan to stay in the home for more than 20 months → refinance is profitable.
If you plan to move before 20 months → the math doesn't work.
Warning: Monthly savings isn't the only metric. Refinancing from year 10 of a 30-year mortgage into a new 30-year extends your loan by 10 years — you might save $200/month but pay $50,000 more in total interest over the extended life of the new loan.