How this number is made
A refinance is worth the paperwork only if the lower payment lasts long enough to repay the closing costs, and only if you look at total interest too. Stretching the term makes the payment look better than the loan is.
- Use the balance you would refinance, not the original loan amount.
- Years left is the remaining term, not the term you signed years ago.
- Closing costs are the lender and title charges you pay to do the refinance. Do not include the escrow you will get back from the old loan and prepay on the new one.
Formula
Monthly savings = current payment − new payment. Break-even months = closing costs ÷ monthly savings. Interest remaining ≈ payment × months left − balance, for each loan.
Worked example
A $280,000 balance at 7% with 27 years left costs $1,925.88 a month. The same balance at 6% for 30 years costs $1,678.74. Six thousand dollars of closing costs takes 25 months to earn back. Remaining interest falls in this example. A longer term does not always do that.
Questions
Should I roll the closing costs into the loan?
This page assumes you pay them in cash. Rolling them in raises the new balance, the new payment, and the break-even. Add them to the balance yourself if that is the quote.
What if I move in two years?
If you will not be in the house through the break-even month, the closing costs are not repaid by the monthly savings. The interest columns still matter only for the months you actually pay.