How to calculate your mortgage refinance breakeven point
There is one number that decides whether refinancing your mortgage is smart or a waste of money, and it is not the interest rate. It is the breakeven point: how long it takes for your monthly savings to pay back the upfront cost of the refinance. Here is how to find it and how to read it.
The breakeven formula
Refinancing costs money up front (closing costs) and saves money every month (a lower payment). Breakeven is simply how many months of savings it takes to pay back those upfront costs. Divide your closing costs by your monthly savings, and you get the number of months until the refinance has paid for itself.
Reading the number
After the breakeven month, the savings are yours to keep. Before it, you are still in the hole on the deal. So the real question is not "is the new rate lower," it is "will I stay in this home past breakeven." If you plan to sell or move before then, refinancing loses you money even at a lower rate, because you never recoup the closing costs.
How Wend uses it
This is the whole engine behind Wend’s mortgage verdict. We estimate your new rate from your credit tier, work out the monthly savings, divide your closing costs by it, and compare the breakeven month to how long you told us you plan to stay. A comfortable margin past breakeven is a clear yes; landing right on top of it is a genuine judgment call, and we say so rather than pretending the math is cleaner than it is.
- Consumer Financial Protection Bureau, Owning a Home: Refinance
- Freddie Mac, "Should I refinance?"