Break-Even Period
Quick answer
The break-even period on a refinance is the number of months it takes for monthly payment savings to recover the closing costs of the new loan.
Break-even period answers a single question: how long must you keep the new loan before the refinance has paid for itself? It is calculated by dividing total closing costs by the monthly payment saving. A refinance costing $5,500 to close that saves $230 per month breaks even in roughly 24 months. A break-even period under 24 months is generally attractive; if you expect to sell or recapitalize before break-even, the closing costs outweigh the savings. Break-even ignores non-payment benefits such as removing recourse, extending maturity, or converting floating-rate debt to fixed.
Formula
Break-Even Months = Closing Costs ÷ Monthly Payment Savings
Example: $5,500 closing costs ÷ $230 monthly savings = approximately 24 months
Related product: Permanent Debt
Free tool: Mortgage Refinance Calculator — run this calculation live, no sign-up required.
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