Refinance Break-Even Calculator

A refinance is a trade: you pay closing costs today in exchange for a lower monthly payment over the life of the new loan. The decision comes down to two questions. How many months until the monthly savings recover the closing costs? And do you plan to stay in the home that long?

Break-even — the recovery clock

Break-even is mechanical: divide your refinance closing costs by your monthly payment savings. If the new rate cuts your payment by $300/month and the refi cost $4,500 to close, break-even is 15 months. From month 16 onward, every dollar of monthly savings is yours. This calculator computes that number directly and shows it as the headline.

Net savings — the dollar verdict

The secondary headline is the net dollar outcome over your planned hold period. We multiply monthly savings by the months you say you will stay, then subtract closing costs. Positive means you walk away ahead; negative means the refi loses money. The slider lets you drag months-to-stay and watch the number flip — that crossover point is the literal break-even.

When does refinancing actually pencil?

The classic 0.5% to 1% rate-drop rule of thumb is a starting filter, not an answer. On a $400K loan a 0.5% drop saves roughly $130-160/month — at $4,000 in closing costs, that's a ~28-month break-even, fine if you are staying 7+ years, ugly if you might move in three. On a $150K loan the same 0.5% drop only saves ~$50/month, pushing break-even past 80 months and probably making the refi a bad bet for most homeowners. Always run your actual numbers.

Other things that move the math: lender credits (negative closing costs in exchange for a slightly higher rate, which can pencil for short-hold scenarios), impound-account refunds from your old lender (gets credited at closing), and any shortened term that increases the principal-payment portion even though the rate is lower.

The term-reset trap (and when to avoid it)

If your current loan has 22 years left and you refinance into a fresh 30-year, your monthly payment drops twice — once from the lower rate, once from re-amortizing across more months. That feels great, but you have effectively added 8 years of interest payments to the schedule. The lifetime-interest comparison in the breakdown panel makes this visible. If you plan to keep the home all the way to payoff, consider refinancing into a 20-year (or even 15-year) instead — the monthly payment will be higher than the 30-year refi but materially lower than your current loan, and you preserve your original payoff timeline.

Texas Section 50(a)(6) cash-out has different rules

A rate-and-term refinance (this calculator's scenario) keeps your existing loan structure and just lowers the rate. A cash-out refinance pulls equity out and increases the loan balance — and in Texas, cash-out on a homestead is governed by Section 50(a)(6) of the state constitution. The rules: closing costs capped at 2% of the loan amount (with carve- outs for appraisal, title, survey, etc.), 80% LTV maximum, 12-day cooling-off period before closing, and only one 50(a)(6) per 12 months. Once a loan is a 50(a)(6), it stays one for life unless you refinance into a non-50(a)(6) and immediately pay all the cash out — most borrowers cannot. For a cash-out scenario, talk to us directly so the structural constraints get factored in correctly.