When Refinancing Actually Pays Off
A refinance is worth it only if you keep the loan past the break-even month. Here is how to compute that month honestly.
By Intergtm Editorial · Published · Updated · Intergtm
The only question that matters
A refinance trades a known upfront cost for an unknown stream of monthly savings. The break-even month is the month in which cumulative savings first exceed total closing costs. If you expect to sell, pay off, or refinance again before that month, the deal loses money regardless of how much lower the rate is.
What belongs in closing costs
- Lender origination and discount points
- Appraisal, title, settlement, and recording fees
- Prepaid interest at closing, but not escrow deposits you would fund anyway
Costs rolled into the balance still count. Financing them does not make them free; it moves them into the interest you pay for the rest of the term.
Three cases where a lower rate still loses
- You reset the clock. Dropping from year 8 of a 30-year loan into a fresh 30-year term can raise lifetime interest even at a lower rate. - You move first. A 41-month break-even is irrelevant if the median tenure in your job or neighborhood is three years. - You lose a benefit. Some older loans carry assumability or a rate floor that is worth more than the spread.
How to use the calculator
Enter the current and new terms, then read the break-even month. The month-by-month schedule shows exactly when cumulative savings cross the cost line, and the CSV export lets you check the arithmetic yourself.