Mortgage Refinance Break-Even Calculator
Compare a current mortgage with a fixed-rate refinance to find the cash-flow break-even month and check the balance-adjusted result.{{ summaryTitle }}
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Refinance decision
Calculation method:
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The chart renderer is unavailable. The same values remain available in the decision and comparison artifacts.
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Refinancing replaces an existing mortgage with a new loan. A lower note rate can reduce the monthly principal-and-interest payment, but the new loan may also add closing costs to the balance, require cash at closing, or restart repayment over a longer term. The decision depends on how those costs and savings develop during the time the borrower expects to keep the new loan.
A cash-flow break-even point is the first month when accumulated principal-and-interest savings have recovered the costs paid in cash. It answers a narrow but useful question: has the lower modeled payment returned the money spent at closing? Selling the home or refinancing again before that month usually means the cash-paid costs were not recovered through monthly payment savings.
| Item | How it enters the comparison | Why it matters |
|---|---|---|
| Cash-paid costs | Subtract at closing | Monthly principal-and-interest savings must recover them. |
| Financed costs | Add to proposed principal | They can raise payment, interest, and the remaining balance. |
| Holding period | Sets the comparison horizon | A sale, payoff, or later refinance can end the savings period. |
| Remaining balance | Adjusts the horizon result | A lower payment may still leave more principal to repay. |
A lower payment is not the same as a lower borrowing cost. Extending the term can reduce the payment while slowing principal repayment, and a cash-flow crossover can occur even when the refinanced balance remains higher. Compare the break-even month with the expected holding period, then check the remaining balances, modeled interest, term change, annual percentage rate (APR), and total loan costs.
This comparison is an estimate for fixed-rate monthly principal and interest. The lender's Loan Estimate, payoff quote, and final Closing Disclosure control the actual transaction. Taxes, insurance, mortgage insurance, escrow deposits, prepaids, daily interest, and other charges can change cash to close or the total monthly payment without appearing in a principal-and-interest model.
How to Use This Tool:
Use documents prepared for the same comparison date so the balance, rates, terms, and costs describe one consistent decision.
- Enter the latest Current payoff balance, current note rate, and whole monthly payments remaining. Use a payoff quote or current statement rather than the original loan amount.
- Enter the proposed loan amount, note rate, and term from the Loan Estimate. The proposed amount must equal the current payoff plus financed costs within $1; cash-out and cash-in principal changes are outside this comparison.
- Add Costs financed into the refinance, Cash refinance costs, and any separate payoff or prepayment charges. Use zero only when a charge genuinely does not apply.
- Set the expected time keeping the refinance, then compare the Cash-flow break-even with the result at that month and the two remaining balances. Re-run a shorter and longer holding period when the move or payoff date is uncertain.
Interpreting Results:
Cash-flow break-even uses cumulative scheduled principal-and-interest payments and cash-paid refinance costs. A result of month 19 means the cumulative difference first reaches at least $0 in month 19. No cash-flow break-even within the holding plan means the crossover was not reached by the selected month.
A crossover may be temporary if later modeled payments make cumulative savings negative again. The status distinguishes that case from a durable crossover that stays nonnegative through the holding horizon. The Balance-adjusted result is a separate check: a lower remaining balance improves it, while a higher refinanced balance reduces it.
- Compare the break-even month with the time you are reasonably likely to keep the loan, not with the full proposed term by default.
- Read monthly savings beside the term change. A longer term can make the payment smaller without making every horizon favorable.
- Verify payoff charges, APR, total loan costs, cash to close, prepaids, and escrow treatment against the final disclosures before acting.
Technical Details:
Each mortgage is modeled as a fully amortizing fixed-rate schedule with one payment per month. Interest for a modeled month is the opening balance multiplied by the annual note rate divided by 12. The payment then reduces interest and principal, and the final scheduled payment clears any remaining balance.
Formula Core:
For principal P, monthly rate i, and n remaining payments, the level monthly principal-and-interest payment is:
r is the entered annual percentage rate as a percentage number. When the note rate is 0%, the payment is P divided by n.
Cash-flow savings at month t subtract cash-paid costs from the difference between cumulative scheduled payments:
The balance-adjusted result adds the current remaining balance and subtracts the proposed remaining balance:
Financed costs are already included in proposed principal, so they affect the proposed payment and balance without being subtracted again as cash paid.
Rule Core:
| Result | Exact rule |
|---|---|
| At closing | Cash-paid costs are no more than $0.005 and the current payment is at least the proposed payment minus $0.005. |
| First crossover month | The earliest month from 1 through the holding horizon where cumulative cash-flow savings are at least −$0.005. |
| Durable within horizon | Every later monthly cash-flow value through the holding horizon remains at least −$0.005. |
| Temporary crossover | The first nonnegative crossover exists, but a later monthly value falls below −$0.005. |
| Not reached | No monthly cash-flow value reaches the crossover threshold within the selected holding period. |
As a checked case, a $320,000 current balance at 7.25% over 300 months produces a modeled payment of $2,312.98. Refinancing $326,000 at 6.25% for 300 months produces $2,150.52. With $3,000 paid in cash and $6,000 financed, the cash-flow crossover is month 19; at month 60, modeled cash-flow savings are $6,747.59 and the balance-adjusted result is $5,172.86.
Schedules retain full numeric precision. Displayed money is rounded to cents after calculation, while the half-cent comparison tolerance prevents a displayed zero from being classified as negative because of floating-point noise.
Limitations:
This is an educational estimate, not financial advice or a lender disclosure. It models fixed note rates and monthly principal-and-interest payments only.
- Adjustable rates, interest-only or balloon terms, extra payments, delinquency, recasting, and daily-interest payoff changes are outside the model.
- Taxes, homeowners insurance, mortgage insurance, escrow changes, prepaids, lender credits, and opportunity cost are not included unless already reflected in an entered cash cost.
- The proposed loan amount must be the payoff balance plus financed costs. Cash-out and cash-in refinances need a broader comparison because principal changes for reasons beyond refinance charges.
- Confirm material amounts and contract terms with the lender, settlement provider, or a qualified financial professional.
References:
- How do mortgage lenders calculate monthly payments?, Consumer Financial Protection Bureau, December 11, 2024.
- Should I refinance?, Consumer Financial Protection Bureau.
- Closing Disclosure explainer, Consumer Financial Protection Bureau.