Purpose and steps
Monthly savings = current payment − new payment. Simple break-even months = closing costs / positive monthly savings. The selected-stay comparison also adjusts for each loan’s remaining balance. The calculation runs locally and keeps cash-flow timing consistent with the stated assumptions.
- Confirm currency and monthly versus annual amounts. U.S. tax and loan models should be used within their stated scope.
- Prepare Current mortgage balance, Current annual rate, Remaining loan term, New annual rate, New loan term, Refinance closing costs, Expected years in the home. Defaults demonstrate the model rather than your personal circumstances.
- Check the headline result and its components. A key interpretation for this tool is: A lower payment can come from extending the term and may not reduce lifetime interest.
- Compare the baseline with a changed scenario: Compare both break-even months and debt-adjusted savings at the year you expect to sell or refinance again.
Input reference and units
These values reproduce the model’s demonstration. Replace them with your own records or measurements; they are not recommended targets.
On a small screen, swipe the table horizontally to see all columns.
| Parameter | Demonstration value | How to enter it |
|---|---|---|
| Current mortgage balance | 320000 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Current annual rate | 6.5 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| Remaining loan term | 28 years | Use years here. The model converts to months when the payment schedule requires it. |
| New annual rate | 5.25 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| New loan term | 30 years | Use years here. The model converts to months when the payment schedule requires it. |
| Refinance closing costs | 6400 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Expected years in the home | 10 years | Use years here. The model converts to months when the payment schedule requires it. |
Model-specific method
How this calculator produces its result
Monthly savings = current payment − new payment. Simple break-even months = closing costs / positive monthly savings. The selected-stay comparison also adjusts for each loan’s remaining balance.
Solve the break-even equation, then round the period
Break-even sets cumulative benefit equal to the cost to recover. Dividing solves the linear equation only if benefit per period stays constant. A result of 30.2 months means the original cost has not yet been fully recovered at month 30; whole-month reporting rounds up to 31.
A nonpositive saving or contribution has no finite simple payback for a positive initial cost. Payback also ignores what happens after recovery and the time value of money. For refinancing, compare remaining balances and cumulative interest; for a business, check capacity and whether fixed costs rise as sales increase.
Simple payback = upfront cost / saving per period Break-even units = fixed cost / (price − variable cost) Whole periods or units = ceil(calculated result)
- Upfront cost: incremental cash paid now
- Saving: recurring difference between matched scenarios
- Contribution: price minus variable cost per unit
- ceil: smallest integer not below the calculated value
Worked example
$6,400 closing costs and $200 monthly payment savings produce a simple break-even point of 32 months, before tax effects and other loan-specific charges.
Reproduce the default scenario
This is a separate example, calculated using the exact engine on the tool page and the defaults in the input reference above. Health examples use metric units. Displayed rounding may differ from intermediate precision.
- Monthly payment savings
- 303.4 USD
- Current monthly payment
- 2,070.45 USD
- New monthly payment
- 1,767.05 USD
- Closing costs
- 6,400 USD
- Break-even time
- 21.09 months
- Lifetime interest savings before costs
- 59,533.03 USD
- Lifetime savings after costs
- 53,133.03 USD
- Debt-adjusted savings over selected stay
- 31,001.7 USD
Reading results without overstating them
- A lower payment can come from extending the term and may not reduce lifetime interest.
- Compare both break-even months and debt-adjusted savings at the year you expect to sell or refinance again.
Assumptions and exclusions
- Assumes fixed-rate fully amortizing loans and treats closing costs as cash paid. It excludes points, taxes, escrow changes, prepayment penalties, cash-out proceeds, and tax deductions.
Sources and content notes
Toolify describes the implemented algorithm and its assumptions. Sources below support the topic or applicable rules; they do not endorse this calculator. Examples are illustrative, and published rules take precedence over simplified estimates.
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