The Situation

The Break-Even Calculation

Refinancing replaces your existing mortgage with a new one, typically to capture a lower interest rate. But refinancing has costs — typically 2–5% of the loan amount in closing costs. Those costs must be recovered through lower monthly payments before refinancing produces net financial benefit. If you move or pay off the loan before the break-even, you lose money.

A lower rate is not automatically a financial win. A lower rate that takes 7 years to break even — when you plan to move in 4 — is a financial loss.

— Worthune Decision Framework

• You're considering a refinance but haven't calculated your specific break-even timeline
• You've been quoted a lower rate and are assuming the savings justify the refinancing costs without running the numbers
• You're unsure whether to extend your loan term, keep the same term, or shorten it when refinancing