How to Determine When You Break Even on a Mortgage Refinance

Refinancing your mortgage can be a smart financial move, but it is important to know when the savings outweigh the costs. Every refinance comes with upfront expenses—such as appraisal fees, lender charges, title insurance, and closing costs—that can add up to thousands of dollars. The key question is: how long will it take before the monthly savings from your new mortgage balance out the money you spend to refinance? That is where the “break-even point” comes in.

Step 1. Calculate Your Refinancing Costs

Start by adding up the total costs of refinancing. This includes lender fees, appraisal and inspection costs, title and attorney fees, and any other charges required to close the loan. Your lender should provide a Loan Estimate that clearly outlines these expenses.

Step 2. Determine Your Monthly Savings

Next, compare your old mortgage payment to your new one. The difference—usually from a lower interest rate, extended loan term, or both—is your monthly savings. Be sure to factor in property taxes and insurance if they are escrowed, since those may not change.

Step 3. Find the Break-Even Point

Divide the total refinancing costs by your monthly savings. The result tells you how many months it will take to break even. For example, if refinancing costs $6,000 and you save $300 per month, your break-even point is 20 months. If you plan to stay in the home longer than that, refinancing could be worthwhile.

Step 4. Consider Your Timeline and Goals

Breaking even on paper is not the only factor to consider. Think about how long you plan to stay in your home, whether your job or family situation may change, and if refinancing helps meet other goals—such as paying off your home faster, lowering your monthly budget, or consolidating debt.

The Bottom Line

A mortgage refinance can save you money, but only if the benefits outweigh the costs. By carefully calculating your break-even point, you can make a more informed decision about whether refinancing makes sense for your financial situation and long-term plans.