APR Desk
APR Desk · Refinance

Refinance break-even calculator

Months to earn back closing costs

A refinance break-even calculator asks a narrower question than “is the new rate lower?” Closing costs are real money. Break-even is how many months of payment savings it takes to cover those costs. A lower payment that stretches the term can also raise total interest. This page shows both the monthly difference and the interest left on each version of the balance.

Inputs

Result

Enter the balance, both rates, both terms, and the closing costs.

Disclaimer: An estimate for a fixed-rate refinance of the same balance. It is not a Loan Estimate. Cash-out, points, and prepayment penalties are not modeled.

The payment only helps if it fits the paycheck. Convert an hourly wage on the ClearQuip hourly to salary calculator.

How to use

  1. Enter what you owe today, the APR on that loan, and how many months are left.
  2. Enter the new APR and the new term in months. A new 30-year term is 360 months even if you only had 20 years left.
  3. Enter closing costs as a dollar amount you would pay, not as points unless you have already converted points to dollars.
  4. Press Calculate. If the new payment is not lower, there is no monthly break-even. Still read the interest difference.

How it's calculated

Old payment = amortizing payment on the balance for the months left
New payment = amortizing payment on the same balance for the new term
Break-even months = closing costs ÷ (old payment − new payment)

Both payments use the standard formula with r = APR ÷ 12. Break-even divides costs by the monthly savings. If the new payment is higher, that division is not meaningful, and the page says so. Interest remaining is computed by amortizing each version, so a longer new term can show more total interest even while the payment drops.

Paying the current loan down faster without a new loan is the extra payment calculator. Setting two brand-new offers side by side, with no closing-cost clock, is the loan comparison.

Worked example

Suppose the balance is $18,000, the current APR is 8 percent, and 48 months remain. The current payment is $439.43. A new loan at 5 percent for 48 months has a payment of $414.53, a monthly savings of $24.90. Closing costs of $1,200 take 1,200 ÷ 24.90 ≈ 48.2 months to earn back, which is essentially the whole remaining term. A longer new term would lower the payment further and push the interest comparison the other way.

Assumptions and sources

The new loan refinances the same balance. It does not roll closing costs into the principal; if you will finance the costs, add them to the balance only on the new side by rerunning with a higher balance, or treat this result as costs paid in cash. The example payments are the amortizing formula rounded to the cent. No tax deduction is applied, because whether interest is deductible depends on your situation and the tax rules for that year.

FAQ

What if break-even is longer than I will keep the loan?

Then the monthly savings do not cover the costs before you leave the loan. The interest line still matters if the new term changes how much interest you pay while you stay.

Should I roll closing costs into the loan?

This form treats costs as cash you pay up front. Financing them raises the new principal and the new payment. The simple break-even would no longer match.

Why did total interest go up when the rate went down?

A longer term gives the new rate more months to charge interest. A lower rate does not guarantee less interest if the clock is reset.

Does this include cash-out?

No. Cash-out means borrowing more than the current balance. Compare that larger principal as its own loan.

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