Should I Refinance My Mortgage? The Break-Even Rule
Refinancing can lower your payment — but only if you stay past the break-even point. Here's how to run the numbers.
Start with the break-even point
The single most important refinancing number is your break-even point: how many months it takes for your monthly savings to repay the refinance's closing costs. Divide total closing costs by your monthly payment reduction. If closing costs are $6,000 and you save $300 a month, you break even in 20 months.
If you'll keep the home and the loan well past break-even, refinancing likely makes sense. If you might sell or refinance again before then, you'd lose money. The refinance calculator computes this automatically from your numbers.
Don't just chase a lower payment
A lower monthly payment isn't the same as saving money. Refinancing a loan you're 6 years into back out to a fresh 30-year term lowers the payment but can increase total interest, because you've stretched the balance over more years.
Compare lifetime interest, not just the payment. If you refinance to a lower rate, consider keeping the term short (or making extra payments) so the rate savings aren't eaten up by extra years of interest. A general guideline: a rate drop of roughly 0.5 to 1 percentage point is often enough to justify a refinance if you'll stay past break-even.
Other reasons people refinance
Beyond rate savings, homeowners refinance to switch from an adjustable-rate to a fixed-rate loan for payment stability, to drop mortgage insurance once they have enough equity, or to do a cash-out refinance that taps home equity for other needs. Each has trade-offs — cash-out, for instance, increases your balance and total interest.
Run your numbers
Try the Refinance Calculator (Break-Even) to see how this applies to your own situation.
Open the Refinance Calculator (Break-Even) →Frequently asked questions
How much lower does my rate need to be to refinance?
What is a break-even point on a refinance?
Informational only — not financial or tax advice. This article is general educational information and may not reflect current figures or your individual situation. Tax and financial rules change; verify with the IRS or a qualified professional before acting.