Mortgage Refinance Break-Even: When It Pays Off
Cutting your mortgage rate by 1% on a $400,000 loan saves about $263 a month — so $8,000 of closing costs pay for themselves in about 31 months. A refinance only makes sense if you keep the loan past that break-even point.
We computed the break-even for a $400,000 30-year loan refinanced from 7%, across rate reductions and closing-cost levels.
Months to break even
Break-even = closing costs ÷ monthly savings. Find your rate reduction, then your closing-cost column.
| Rate reduction | $4,000 cost | $8,000 cost | $12,000 cost |
|---|---|---|---|
| 0.25% (saves $67/mo) | 60 | 120 | 180 |
| 0.50% (saves $133/mo) | 31 | 61 | 91 |
| 0.75% (saves $198/mo) | 21 | 41 | 61 |
| 1.00% (saves $263/mo) | 16 | 31 | 46 |
| 1.50% (saves $390/mo) | 11 | 21 | 31 |
| 2.00% (saves $514/mo) | 8 | 16 | 24 |
How to read it
If you'll stay in the home (and the loan) past the break-even month, refinancing pays. One trap: taking a fresh 30-year term resets the clock and can raise your total interest even at a lower rate — so compare lifetime interest, not just the payment. Get a precise verdict with the should-I-refinance calculator.
How we calculated this
Based on a $400,000 30-year loan refinanced from 7.00%. Monthly savings = the old payment minus the new payment at the lower rate; break-even months = closing costs ÷ monthly savings (rounded up). Savings scale with loan size, so a larger loan breaks even faster (double the loan ≈ half the months). The figures don't include the lifetime-interest effect of resetting the term.
How do I calculate a refinance break-even point?
Divide your total closing costs by the monthly payment savings. For example, $8,000 of costs and $263 a month of savings break even in about 31 months.
Is refinancing worth it for a 0.5% lower rate?
On a $400,000 loan a 0.5% cut saves about $133 a month, so $8,000 of costs take ~61 months to recoup. It is worth it only if you keep the loan well beyond five years.
What is a good refinance break-even period?
Generally one shorter than how long you plan to keep the home — many borrowers aim for under 2–3 years. The bigger the rate cut and the lower the closing costs, the faster you break even.
Does refinancing reset my loan term?
It can. Taking a new 30-year loan restarts amortization and may increase total interest even at a lower rate. Refinancing into a shorter term avoids this.