What Is the Break-Even Point on a Mortgage Refinance?
Your refinance break-even point is the month when your cumulative monthly savings equal your total closing costs. Until that month, the refinance costs you money on net. After that month, every payment is pure savings.
The formula is straightforward: break-even months = total closing costs ÷ monthly payment reduction. If you paid $7,500 in closing costs and save $267/month, you break even after 29 months — just under 2.5 years.
Why the Break-Even Point Is the Single Most Important Refinance Number
Most homeowners focus on the monthly savings number ("I'll save $267 a month — great!") without asking the follow-up question: how long until I actually come out ahead? If you sell the house in 2 years and your break-even is 3 years, the refinance was a net loss. Our full mortgage refinance calculator computes this alongside total interest savings.
The Tax Deduction Factor
If you itemize deductions, the mortgage interest deduction reduces your effective savings slightly — you lose the deductible interest from your old, higher-rate loan. The tax rate field above adjusts for this. Most borrowers taking the standard deduction should leave it at 0%.
When a Long Break-Even Is Still Worth It
A 48-month break-even isn't automatically a bad deal if you're confident you'll stay for 10+ years. On a $300,000 loan, a 1% rate reduction saves roughly $150,000 in lifetime interest on a 30-year term. The 15 vs 30-year refinance comparison shows how loan term interacts with break-even math.