A refinance pitch starts with the lower payment and stops there. This calculator finishes the thought: it computes the monthly savings, the months needed to recover closing costs, and the same-horizon comparison that shows whether the new loan actually costs less than the one you already have.
The default borrower has a $320,000 balance on a loan written in 2024 at 7.50%, with 28 years of payments left. Freddie Mac's Primary Mortgage Market Survey put the 30-year fixed average at 6.95% on September 17, 2026, so the market is offering a 0.55-point cut. Closing costs run 3% to 6% of the loan principal according to Freddie Mac, and this borrower shops down to the bottom of that range: $9,600.
The new payment is $2,118.23 against the current $2,281.18, a saving of $162.94 a month. Divide $9,600 by $162.94 and the break-even lands at 58.9 months, just under five years. By the standard rule, this refinance works. The same-horizon comparison below says something else, and the gap between the two answers is the single most useful thing to understand about refinance math.
The payment fell for two separate reasons, and the standard rule lumps them together. One is the rate cut itself. The other is the term reset: the borrower had only 28 years left, and the new loan restarts the clock at 30. To isolate the rate, price the same balance at 6.95% over the original 336 months. That payment is $2,164.22, a saving of $116.96 a month. So $45.98 of the advertised $162.94, more than a quarter of it, comes from adding two years to the loan, and money borrowed for two extra years is not savings.
The honest version of this refinance, term-matched, breaks even in 82.1 months instead of 58.9. It also delivers something the stretched version cannot: over the full 336 months, total interest falls from $446,475 to $407,178, a real saving of $39,297. The stretched 30-year version never gets there. Its total interest is $442,564, within $3,911 of the old loan, and it leaves a $47,335 balance outstanding at month 336 when the old loan would be dead.
Put both loans on the same clock and count every dollar that leaves. Staying means 336 payments of $2,281.18, or $766,475. Refinancing means $9,600 of costs, 336 payments of $2,118.23, and the $47,335 balance still owed at the end: $768,661. The refinance with the lower payment is $2,186 more expensive over the period. The break-even month the standard rule promised never arrives, because the equity position keeps eroding even as the cash flow improves.
This is also why the plan to sell matters. The table below tracks the default refinance month by month, comparing cumulative payment savings against the closing costs and the slower principal paydown.
| Years after refi | Payment savings so far | Costs + balance gap | Net position |
|---|---|---|---|
| 1 | $1,955 | $9,811 | −$7,855 |
| 2 | $3,911 | $10,057 | −$6,146 |
| 3 | $5,866 | $10,343 | −$4,477 |
| 4 | $7,821 | $10,673 | −$2,852 |
| 5 | $9,777 | $11,052 | −$1,276 |
Five years in, the borrower is still behind, and the gap closes slowly because the balance difference keeps growing. A thin rate cut into a term reset is not a borderline call. On these numbers it is a slow loss dressed up as $163 a month of relief.
Variables in plain terms. P is the current loan balance, the amount being refinanced. i is the monthly rate, the APR divided by 12, so 7.50% becomes 0.625% and 6.95% becomes about 0.5792%. n is the number of monthly payments. The simple break-even divides what you pay at closing by what you save each month; it answers when the cash flow catches up, and nothing more.
Old loan: P = $320,000, i = 0.075/12, n = 336, so Mold = $2,281.18. New loan: i = 0.0695/12, n = 360, so Mnew = $2,118.23. Monthly saving = $162.94, and the simple break-even is 9,600 / 162.94 = 58.9 months. The term-matched check prices 6.95% over 336 months for $2,164.22, revealing that only $116.96 of the saving comes from the rate. The same-horizon test then nets it out: stay costs $766,475, refinance costs $768,661, a $2,186 loss. Three numbers, three answers, and only the third one is the truth.
Holding the $320,000 balance, the $9,600 of costs, and a fresh 30-year term fixed, only the new rate moves in the table below. This is where the three-quarter-point rule of thumb comes from.
| New rate | Monthly saving | Simple break-even |
|---|---|---|
| 7.25% (−0.25 pt) | $98.21 | 97.7 months |
| 6.95% (−0.55 pt, default) | $162.94 | 58.9 months |
| 6.50% (−1.00 pt) | $258.56 | 37.1 months |
| 6.00% (−1.50 pt) | $362.61 | 26.5 months |
At a quarter-point cut the break-even stretches past eight years, longer than most people keep a loan, and the term reset dominates everything. At a full point and a half, the break-even arrives inside three years and the refinance survives even the equity-adjusted test. Refinancing is worth the paperwork when the cut is large enough that the rate does the work by itself.
For borrowers whose income has grown since the original loan, the more interesting move is shortening the term. At the Freddie Mac 15-year average of 6.26% (September 17, 2026), refinancing the default balance over 15 years costs $2,745.50 a month, $464.32 more than now. Total interest drops from $446,475 to $174,190, a saving of $272,286. The payment rises from day one, so there is no cash-flow break-even to wait out; the only cost to recover is the $9,600 of closing costs, and the interest arithmetic buries it in the first year. If the higher payment fits the budget, this is the version of refinancing that reliably pays.
Once the break-even is on the table, the rest of the picture lives on other pages here. The mortgage payoff calculator shows what extra monthly payments do to the same balance, often a better use of cash than chasing a thin rate cut. The amortization calculator lays out the month-by-month principal and interest split so you can see exactly where the term reset costs you. And the loan payment calculator prices any fixed-rate loan from scratch, handy for checking a lender's quote against your own arithmetic before you sign, and it costs the fees against the years you actually stay rather than the term printed on the note.
One habit worth keeping: get the Loan Estimate from at least two lenders and read the rate, the term, and Section A of the cost sheet side by side. Freddie Mac's research on discount points points the same direction; prepaying fees to shave the rate has historically shown no significant financial benefit. The quote with the lowest payment is frequently the one with the most term hidden inside it.
The standard rule divides closing costs by the monthly payment savings. On the default example, $9,600 of costs divided by $162.94 of monthly savings gives a break-even of 58.9 months. What it misses is where the savings come from. A refinance into a fresh 30-year term lowers the payment two ways: the rate cut and the term reset. On these defaults, refinancing for the same 28 remaining months saves only $116.96 a month, so $45.98 of the advertised savings is just the term being stretched. The simple rule also ignores that the new loan still has a balance after the old loan would have been paid off.
Yes, and the default example shows it. Refinancing $320,000 from 7.50% with 28 years left into 6.95% over a new 30 years cuts the payment by $162.94 and recovers $9,600 of costs in 59 months. But compare the two loans over the same 28 years: staying costs $766,475 in payments, while refinancing costs $9,600 plus 336 payments of $2,118.23 plus a $47,335 balloon still owed at the end, a total of $768,661. The refinance is $2,186 worse despite the lower payment, because the savings came mostly from adding two years of interest to the loan.
Rolling costs in preserves your cash but changes the math in three ways: the financed amount rises, so the payment savings shrink slightly, you pay interest on your own closing costs for the life of the loan, and the break-even stretches. Many lenders also quote a slightly higher rate for a no-closing-cost or rolled-in refinance, trading an upfront fee for a stream of higher payments. If you roll $9,600 into the loan instead of paying cash, run the calculator with the larger balance and recheck the break-even before assuming the deal still works.
A common rule of thumb is three quarters of a percentage point or more, and the calculator shows why the threshold exists. On the default $320,000 balance with $9,600 of costs, a 0.25-point cut to 7.25% takes 97.7 months to break even, a 0.55-point cut to 6.95% takes 58.9 months, a 1-point cut to 6.50% takes 37.1 months, and a 1.5-point cut to 6.00% takes 26.5 months. The cut needs to be big enough that the rate, by itself and not the longer term, produces most of the savings.
You lose. Cumulative payment savings reach the $9,600 of costs only in month 59 on the default inputs, so selling in the first four years means recovering less than you paid. Even at five years, the payment savings total $9,777, barely past costs, while the new loan balance sits $1,452 above where the old loan would have been. Equity-adjusted, the refinance is still about $1,276 behind at that point. If a move is realistic within five years, a refinance into a reset term rarely pays for itself.
For many borrowers who can afford it, yes. At the Freddie Mac 15-year average of 6.26% (September 17, 2026), refinancing the default $320,000 balance over 15 years costs $2,745.50 a month, $464.32 more than the current payment, yet total interest drops from $446,475 on the remaining term to $174,190, a saving of $272,286. There is no break-even month to wait for on the payment side because the payment rises from day one; the only hurdle is recovering the closing costs, and the interest math makes that almost a footnote.
All calculation logic on this page is implemented from the primary documents below. Each one is listed with the figure it supplies, so any rate or threshold in the result can be traced back to its published source.
Same published formulas, same sourcing standard, one page each.