A lower monthly payment does not always mean a refinance will reduce your total borrowing cost. Refinancing may involve closing costs and other expenses that should be compared with the estimated monthly savings. One way to evaluate the transaction is to consider the break-even period, which estimates how long it may take for accumulated monthly savings to offset the upfront costs of refinancing.
Refinancing can also reset or extend your repayment period. For example, replacing a mortgage that has already been paid down for several years with a new longer-term loan may lower the monthly payment while increasing the amount of time you remain in debt. Compare both the remaining term of your current mortgage and the term of the proposed refinance.
Monthly payment savings and long-term interest savings are different measurements. A refinance may improve monthly cash flow without necessarily reducing the total interest paid over the life of the loan. When evaluating the results, consider the new interest rate, loan term, closing costs, monthly payment, break-even period, and estimated total interest together rather than focusing on monthly savings alone.
To estimate transaction fees separately, use our Closing Cost Calculator. If you are comparing refinancing with paying extra toward your current balance, review our Mortgage Payoff Strategies guide.
| Closing Costs | Monthly Savings | Estimated Break-Even |
|---|---|---|
| $4,000 | $200/month | 20 months |
| $6,000 | $250/month | 24 months |
| $8,000 | $300/month | About 27 months |
Refinance results depend on the information entered into the calculator and the costs included in the comparison. Depending on the transaction, refinance costs may include lender fees, appraisal fees, title and settlement charges, recording fees, prepaid expenses, escrow deposits, and other applicable costs.
