The basic idea
If a refinance lowers your monthly payment, the savings need time to overcome the upfront closing costs. Dividing the closing costs by the monthly savings gives an approximate number of months to break even.
For example, $6,000 in closing costs and $200 of monthly savings would take roughly 30 months to recover before any net benefit accrues.
Why it matters
If you expect to keep the loan well beyond the break-even point, the refinance may produce net savings. If you expect to sell, refinance again, or pay off the loan earlier, the math may not work as cleanly.
What break-even doesn't tell you
Break-even ignores other goals — like shortening the term to build equity faster, switching from adjustable to fixed, or accessing equity. Use it as one input, not the only input.
- Break-even = closing costs ÷ monthly savings.
- Stay past break-even for the math to favor refinancing on payment alone.
- Break-even doesn't capture term changes or strategic goals.
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