What break-even period is acceptable?

Industry rule of thumb: refi makes sense if your break-even is under half your expected hold period. If you'll be in the loan 7 years and break-even is 24 months, that's clearly worth it. If break-even is 60 months, it's marginal — you only save for the last 2 years. Above your expected hold period: skip the refi.

Should I shorten my term (15-yr) when I refi?

If cash flow allows, often yes — 15-year rates are typically 0.5-1.0% below 30-year, AND you build equity faster. Trade-off: higher monthly payment, less liquidity. This calculator models any term you enter, so try both and compare lifetime interest.

What about an ARM (adjustable-rate mortgage)?

ARMs can be cheaper initially if you'll definitely sell before the rate resets (typically 5, 7, or 10 years). This calculator doesn't model rate resets — for an ARM refi, use it only for the fixed period of the loan, then assume the rate could move significantly. Most homeowners overestimate how long they'll stay, which is why fixed-rate refis are usually the safer call.

What if rates drop more after I refi?

You can refi again — closing costs apply each time. Rough rule: a second refi makes sense if rates have dropped another 0.75-1.0%+ AND you have at least the break-even period left in your expected hold. The math is exactly the same each time, just plug in the new numbers.

Should I cash out at the refi?

Cash-out refis trade equity for liquidity. The math here is the same break-even calculation, but the rate is typically 0.25-0.5% higher than a rate-and-term refi, and the loan amount is bigger. Worth it if you'll deploy the cash at a higher return (e.g., another rental property) or pay off higher-interest debt. Rarely worth it for consumption.

How much do refi closing costs typically run?

Generally 2-5% of the loan amount. On a $400k refi: typically $8-20k total. Includes lender origination, appraisal, title insurance, recording fees, prepaid interest, and escrow setup. Shop around — closing costs vary by 30-50% across lenders for the exact same loan.

Refi Break-Even Calculator

A refi only pays off if you stay in the loan long enough to recoup the closing costs. This calc tells you exactly when that happens — and warns you if resetting to a 30-year term costs more in lifetime interest than it saves in monthly payment.

Your current loan

Current balance

Current rate

Months remaining

The refi offer

New rate

New term

years

Common: 15, 20, or 30 years.Closing costs

Typically 2-5% of the new loan amount.

Roll closing costs into the loan (zero upfront, but you pay interest on them)

Your timeline

Expected hold (years)

How long until you'll sell or refi again. Be honest — most homeowners overestimate.

Verdict

Strong yes — refi

Break-even is well before your hold horizon, AND lifetime interest is lower or unchanged.

Monthly savings

$339.31

Break-even

18 mo

vs 84 months you plan to hold

Net over 7-yr hold

$22,502

Lifetime interest delta

-$49,503

New loan costs less total interest — pure win.

New loan amount

$280,000

Equal to your current balance

Side-by-side

	Current loan	New loan
Balance	$280,000	$280,000
Rate	7.500%	6.000%
Term	27.0 yr left	30 yr
Monthly P&I	$2,018.05	$1,678.74
Lifetime interest	$373,850	$324,347

The two questions a refi has to answer

1. How long until the monthly savings recoup the closing costs? That's the break-even point. If you plan to sell or refi again before then, you lose money on the deal.

2. Does the new loan cost more in lifetime interest? Refinancing into a fresh 30-year term — even at a lower rate — can mean more total interest paid, because you're re-extending the amortization. Lower monthly payment with higher lifetime cost is a real trade-off, not a free win.

Closing costs: roll in or pay out of pocket?

Rolling closing costs into the loan means zero upfront cash, but you pay interest on those costs over the life of the loan. Paying out of pocket means the savings start immediately. For short hold periods, paying out of pocket wins; for long holds with a meaningful rate drop, rolling in is often the right call. The calculator handles both — toggle the option above.

Frequently asked questions

What break-even period is acceptable?
Industry rule of thumb: refi makes sense if your break-even is under half your expected hold period. If you'll be in the loan 7 years and break-even is 24 months, that's clearly worth it. If break-even is 60 months, it's marginal — you only save for the last 2 years. Above your expected hold period: skip the refi.
Should I shorten my term (15-yr) when I refi?
If cash flow allows, often yes — 15-year rates are typically 0.5-1.0% below 30-year, AND you build equity faster. Trade-off: higher monthly payment, less liquidity. This calculator models any term you enter, so try both and compare lifetime interest.
What about an ARM (adjustable-rate mortgage)?
ARMs can be cheaper initially if you'll definitely sell before the rate resets (typically 5, 7, or 10 years). This calculator doesn't model rate resets — for an ARM refi, use it only for the fixed period of the loan, then assume the rate could move significantly. Most homeowners overestimate how long they'll stay, which is why fixed-rate refis are usually the safer call.
What if rates drop more after I refi?
You can refi again — closing costs apply each time. Rough rule: a second refi makes sense if rates have dropped another 0.75-1.0%+ AND you have at least the break-even period left in your expected hold. The math is exactly the same each time, just plug in the new numbers.
Should I cash out at the refi?
Cash-out refis trade equity for liquidity. The math here is the same break-even calculation, but the rate is typically 0.25-0.5% higher than a rate-and-term refi, and the loan amount is bigger. Worth it if you'll deploy the cash at a higher return (e.g., another rental property) or pay off higher-interest debt. Rarely worth it for consumption.
How much do refi closing costs typically run?
Generally 2-5% of the loan amount. On a $400k refi: typically $8-20k total. Includes lender origination, appraisal, title insurance, recording fees, prepaid interest, and escrow setup. Shop around — closing costs vary by 30-50% across lenders for the exact same loan.