Refinance break-even calculator

Calculate how long a lower principal and interest payment would take to recover upfront refinance costs. Use the balance you still owe and the remaining life of your current loan. The result is a cash-flow comparison, with lifetime interest shown separately so you can see the effect of a new term.

Worked example from an official source

Source: Federal Reserve break-even worksheet.

Start with the remaining loan

Enter your unpaid principal balance, rather than the amount you originally borrowed. Enter the current note rate and the time left until the current loan would be paid off under its regular payment schedule. Those inputs define the current payment used in the comparison. This tool assumes a fixed-rate, fully amortizing loan with no extra principal payments. If your statement includes escrow, do not treat the entire statement payment as principal and interest. The CFPB payment explanation describes why taxes and insurance can make the full monthly bill higher.

Read the break-even result with the term

A smaller new payment can come from a lower rate, a longer repayment period, or both. Enter the proposed term exactly as you want to compare it. Then check the lifetime interest difference as well as the monthly savings. The Federal Reserve refinancing guide explains that increasing a mortgage term extends how long you make payments. A payment reduction alone does not establish that the loan has a lower total cost. The tool marks a recovery month beyond the shared payment period because the simple savings comparison stops working after one loan is paid off.

Choose the costs to compare

Use upfront costs you expect to pay for the refinance. This version does not roll those costs into the new balance. If you want to model financed costs, use the cash-out payment tool and set requested cash to zero. Keep refundable escrow balances and ongoing household expenses separate from the costs you are trying to recover. The calculator applies no tax deduction, investment return, or home-price assumption. Its cost-recovery month is based only on the difference between the two principal and interest payments.

Try the same remaining term first

Run a comparison with the proposed loan set to the same remaining term as the existing loan. Then run it again with the actual proposed term. This makes the effect of restarting the repayment schedule easier to see. A negative monthly savings result means the new payment is higher. A negative lifetime interest difference means the new loan has more interest under these assumptions. Closing costs are subtracted again only in the separate net lifetime benefit result; they are not interest. Use your planned time with the loan to interpret the recovery month, rather than treating it as a recommendation to refinance.

How it works

P is the borrowed principal, M is the monthly principal and interest payment, r is the monthly interest rate, and n is the number of monthly payments. At a zero interest rate, M = P / n. The CFPB payment explanation describes a fixed-rate payment that fully repays the loan by the end of its term. This is the standard amortization formula for that payment.

Remaining interest = M * n - P. Monthly savings = current payment - new payment. Lifetime interest difference = remaining current interest - new loan interest. Net lifetime benefit subtracts upfront closing costs from that difference. A negative result means the new scenario costs more.

Cash-flow break-even month = ceiling(upfront closing costs / positive monthly savings). There is no payment-based break-even when monthly savings are zero or negative. If the result exceeds the shorter of the two payment periods, the tool marks it beyond the loan period. The Federal Reserve refinancing worksheet explains cost recovery using savings; its published example includes an after-tax adjustment. This tool uses pre-tax principal and interest savings and does not compare equity at a sale date.