Refinance break-even
Divide upfront refinancing costs by the reduction in monthly payment.
How this works
Monthly cash-flow saving = current monthly payment − proposed monthly payment. Break-even months = upfront refinancing costs ÷ monthly cash-flow saving. The result can be a fraction of a month; the proposed payment must be lower for this calculation.
Example
The illustration may use different inputs from the reproducible default inputs listed below.
The defaults save $1,800 − $1,650 = $150 per month. Dividing $3,000 of upfront costs by $150 gives 20 months. With all reset-default inputs, months to recover upfront costs: 20.
- Refinancing costs ($)
- 3000
- Current monthly payment ($)
- 1800
- Proposed monthly payment ($)
- 1650
- Months to recover upfront costs
- 20
Scope and assumptions
This compares payment cash flow only, not total interest or the economic value of refinancing. A longer term can lower the payment while increasing total interest. Changes in taxes, insurance, loan balance, fees financed into the new loan and the time value of money are not calculated.
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