Should I Refinance? Break-Even Math First | FaridiaTech.Com

Your lender is calling with a “great offer.” Rates dropped half a point, and the internet says you should grab it before it disappears.

Slow down. A lower rate is not automatically a good deal. The only question that matters is: how long until the refinance pays for itself?

The break-even point is the whole decision

Refinancing isn’t free — closing costs typically run 2–5% of the loan amount. The break-even point is the month when your accumulated monthly savings finally catch up to what you paid.

Break-even (months) = total closing costs ÷ monthly savings

If you plan to stay in the home past the break-even month, the refinance is worth it. If you’ll move before then, you just paid thousands for nothing.

Worked example: $280,000 at 7.0% down to 6.0%

A $280,000 balance at 7.0%, offered 6.0% with $4,500 in closing costs:

Old payment: $1,862.85/month. New payment: $1,678.74/month. Monthly savings: $184.11.

Break-even: $4,500 ÷ $184.11 = 24.4 months — about 2 years. Stay at least two years and this refinance makes money; sell in 18 months and it’s an $1,186 loss dressed up as a “lower rate.”

Run both numbers through our refinance calculator — it handles the full side-by-side comparison in seconds.

Three situations where refinancing is a bad idea

1. You’re selling before the break-even month

If your break-even is 30 months and you relocate in two years, the “savings” never materialize. Add a cushion to your timeline.

2. The term reset trap

Eight years into a 30-year mortgage, refinancing into a brand-new 30-year loan means 38 years of total payments. Match the new term to your remaining years — model it with a mortgage calculator first.

3. The costs are quietly too high

A refinance with $9,000 in costs and $150/month in savings has a 60-month break-even. Always run the math on the total cost figure and get two or three estimates.

A quick checklist before you sign

• What’s my break-even month? Closing costs ÷ monthly savings.
• Will I still own the home then? If “probably,” wait.
• Am I shortening or lengthening the term? Shorter (or matching remaining years) is almost always better.
• Am I rolling costs into the loan? They still count in the break-even math.
• What does total interest look like? Compare lifetime interest old vs new, minus costs.

If you’re thinking about what comes after — like knocking years off the new loan — our guide on how extra mortgage payments save interest walks through it. Browse all free tools on the tools page.

Frequently asked questions

How much does it cost to refinance a mortgage?
Closing costs usually fall between 2% and 5% of the loan amount — roughly $5,600 to $14,000 on a $280,000 loan.

Is a 1% lower interest rate worth refinancing?
Usually yes, but only if you stay past the break-even point — about two years in our example.

Does refinancing reset my loan term?
It can. Refinancing into a new 30-year loan when you had 22 years left restarts the clock. Ask for a term matching your remaining years.

Can I refinance with bad credit?
Most conventional lenders want at least 620; the best rates go to 740+. Run the break-even before getting excited.

How many times can you refinance?
No legal limit — but run the break-even fresh every time. If your last refinance hasn’t broken even yet, doing it again wastes the first round’s costs.