The basic break-even estimate
If closing costs are $6,000 and the comparable monthly savings are $200, the simple break-even estimate is 30 months. That does not prove the refinance is beneficial; it estimates how long it may take the monthly difference to recover the upfront cash cost.
If costs are financed, they may not appear as cash paid at closing, but they still increase the loan balance and can generate interest. Compare both the cash-to-close and the new principal balance.
What the simple formula can miss
- Term reset: restarting at 30 years can lower the payment partly by extending repayment.
- Escrow changes: taxes and insurance can move independently of the refinance benefit.
- Mortgage insurance: adding or removing it can change the comparison.
- Points and lender credits: they trade upfront cost against rate and payment.
- Cash-out: the new payment may include additional money borrowed, so it is not an apples-to-apples rate-and-term comparison.
- Time horizon: selling, refinancing again, or paying the loan off before break-even changes the result.
Compare more than one line on the worksheet
Review the current and proposed principal-and-interest payments, remaining term, new term, new balance, all costs, total interest over the expected holding period, and the goal of the transaction. Also ask whether applying the closing-cost money directly to the current principal would better support that goal.
The balance, term, costs, and time in the loan all matter. Ask for a comparison using the same expected ownership period.
Run an estimate, then review the real offer
The refinance break-even calculator compares principal-and-interest payments and closing costs. It does not include every tax, insurance, mortgage-insurance, or program variable. Use it to form better questions—not to replace a loan analysis.