A straightforward calculation: how long until your monthly savings add up to what you spent on closing costs.
Break-even (months) = Closing costs ÷ (Old payment − New payment) Everything saved after that point is pure gain for as long as you keep the loan.
Why your planned time in the home is the real decision factor
A refinance with a 30-month break-even is a poor choice if you plan to sell or move in 24 months — you would lose money net of costs. The same refinance is an easy yes if you plan to stay 10+ years. This is the single most important variable in the refinance decision, more than the rate itself.
A note on rolled-in closing costs
If your closing costs are rolled into the loan balance rather than paid in cash, your "break-even" changes meaning slightly — you are paying interest on those costs for the life of the loan. In that case, compare total interest paid across both loans rather than relying purely on the payment-savings break-even.
Under 24-36 months is considered strong. 36-60 months is moderate — worthwhile if you are confident you will stay that long. Beyond 60 months, the refinance is marginal for most homeowners given moving and life-change probability.
How is refinance break-even calculated?
Closing costs divided by your monthly payment savings. If closing costs are $6,000 and you save $255/month, break-even is roughly 23.5 months.
Should I refinance if I might move in a few years?
Only if your break-even point is comfortably before your expected move date. If there is meaningful uncertainty about your timeline, favor a refinance with lower or no closing costs even at a slightly higher rate.
Does break-even account for the time value of money?
This simple version does not discount future savings — it is a straightforward payback calculation, which is the standard way most homeowners and lenders discuss refinance break-even.
What if my new loan has a different term than my old one?
Break-even on payment savings alone can be misleading if the term changes significantly. Cross-check with the total interest comparison in the Refinance Calculator to see the full picture.