Compare the current fixed-rate mortgage with a new rate on the same remaining balance and term, then subtract closing costs to estimate net savings and break-even.
When a lower rate still has to earn back closing costs
Both loans use the same remaining balance and remaining term, with equal principal-and-interest payments. Closing costs are paid in cash and are not added to the new loan. Monthly savings is the difference in payments; break-even is the first month whose cumulative payment difference covers those costs.
Payment = P × r ÷ [1 − (1+r)^(−n)] Monthly savings = current payment − new payment Interest savings = current total interest − new total interest Net savings = interest savings − closing costs Break-even months = ceil(closing costs ÷ monthly savings)
Example
A $300,000 balance, 300 remaining months, and a drop from 6.5% to 5.5% lowers the monthly principal-and-interest payment. $4,500 of closing costs are earned back only after enough months of that payment difference.
What this comparison holds fixed
The term does not reset to a new 30-year clock. Points financed into the loan, cash-out, PMI, escrow changes, taxes, and selling the home before break-even are outside this page. Compare a different term with the mortgage calculator first.
Frequently asked questions
What belongs in closing costs?
Fees you pay because of the refinance: origination, appraisal, title, recording, and any remaining prepayment charge. Use the written loan estimate.
Can a lower rate still lose money?
Yes, when the remaining term is short, the rate cut is small, or closing costs are high. Net savings can be negative.
Does break-even mean I should refinance?
It only marks when undiscounted payment savings cover the cash fee. Credit, cash flow, and how long you will keep the loan still matter.
Can I model a longer new term?
This version keeps the remaining term the same so a lower payment from stretching the loan is not counted as a saving.