Refinance Break-Even: The Month Count, and the Term Reset Nobody Prices
2026-09-18
Short answer: Break-even month = closing costs ÷ monthly saving. On a $340,000 balance, dropping from 6.95% to 5.95% with $6,800 of costs saves $299.80 a month and breaks even in 23 months. But that saving comes partly from restarting the clock: matching your existing payoff date instead saves $83 less each month and $46,000 more in total interest.
The standard calculation
break-even months = total closing costs ÷ monthly savingWorked example — a 340,000 balance with 324 months (27 years) left at 6.95%, refinancing at 5.95% with 6,800 of closing costs:
| Payment | ||
|---|---|---|
| Current, 6.95%, 324 months left | $2,327.39 | |
| New, 5.95%, 360 months | $2,027.59 | |
| Monthly saving | $299.80 | |
| Break-even | 23 months | 6,800 ÷ 299.80 |
Keep the loan longer than about two years and the refinance pays. That is the calculation nearly every lender and article shows, and it is correct as far as it goes.
The term reset it hides
The new loan runs 360 months. The old one had 324 left. Three of those saved dollars every month are not a saving at all — they are three extra years of payments moved into the future.
| Option | Payment | Months | Total interest |
|---|---|---|---|
| Stay at 6.95% | $2,327.39 | 324 | $414,074 |
| Refinance, new 30-year | $2,027.59 | 360 | $389,932 |
| Refinance, matched 27-year | $2,111.00 | 324 | $343,964 |
Refinancing into a new 30-year saves 24,142 of interest. Refinancing into a term that matches your existing payoff date saves **70,110** — 45,968 more, for 83.41 a month.
The 30-year option is not wrong; it buys a lower required payment, which has real value if income is uncertain. But it should be chosen deliberately, not accepted because it is what the quote defaulted to.
The useful middle path
Take the 30-year loan and pay it at the 27-year payment. You get:
- The lower required payment ($2,027.59) as a safety valve in a bad month or a bad year.
- The shorter effective term whenever you pay the extra $83.41.
The only cost is having to send the extra yourself rather than having it built into the required payment, which for some people is a real cost.
What would reverse the conclusion
- You may move before the break-even month. At 23 months, anyone with a realistic chance of selling or relocating inside two years is likely to lose the closing costs. A no-closing-cost refinance at a slightly higher rate fits that case better.
- Costs rolled into the balance. Financing
6,800 at 5.95% over 30 years adds roughly7,800 of interest. The break-even month still reads 23, but the lifetime comparison changes materially. - You are far into the amortisation schedule. Late in a loan most of each payment is principal. Restarting a 30-year term at year 22 reverses that mix and can raise lifetime interest even at a lower rate.
- Cash-out. Taking equity out changes the loan size, and the break-even arithmetic above no longer describes what you are doing. That is a separate decision with a separate calculation.
Run your own numbers in the mortgage payoff calculator →