David Chen is a Certified Financial Analyst with deep experience in mortgage underwriting and evaluating the long-term financial viability of refinancing decisions.
Use the authoritative **Mortgage Refinance Savings Calculator** to determine if refinancing is financially beneficial. Enter any three variables—Old Monthly Payment, New Monthly Payment, Refinance Cost, or Break-Even Time—to solve for the remaining unknown value.
Mortgage Refinance Savings Calculator
Break-Even Time Formula
Core Relationship: Refinance Cost $= \text{Monthly Savings} \times \text{Break-Even Time}$
$$ C_{refi} = (M_{old} – M_{new}) \times T_{be} $$
The four solution formulas:
T (Time, Q) $= C_{refi} / (M_{old} – M_{new})$
C (Cost, F) $= (M_{old} – M_{new}) \times T_{be}$
M$_{old}$ (Old Payment, P) $= M_{new} + (C_{refi} / T_{be})$
M$_{new}$ (New Payment, V) $= M_{old} – (C_{refi} / T_{be})$
Formula Source: NerdWalletFormula Variables
- P ($\mathbf{M_{old}}$): Your current (Old) total monthly mortgage payment (PITI).
- V ($\mathbf{M_{new}}$): Your proposed new total monthly mortgage payment (PITI).
- F ($\mathbf{C_{refi}}$): The total out-of-pocket costs to complete the refinance (closing costs).
- Q ($\mathbf{T_{be}}$): Break-Even Time in months. The number of months until the accumulated monthly savings equal the refinance cost.
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What is the Break-Even Time for Refinancing?
The Break-Even Time is the single most important metric when considering a mortgage refinance. It represents the point in time (measured in months) when the accumulated savings from your new, lower monthly payment exactly equals the total cost you paid to close the new loan (closing costs). Before the break-even point, you are losing money; after it, you begin to realize net financial savings.
The calculation is based on simple arithmetic: you divide the total closing costs by the difference between your old and new monthly payments (your net monthly savings). If your break-even time is significantly shorter than the amount of time you plan to stay in the home, refinancing is generally recommended. Conversely, a long break-even time often suggests that the refinance is not worth the upfront cost.
How to Calculate Required New Payment (Example)
Let’s find the maximum acceptable New Monthly Payment ($\mathbf{M_{new}}$) if the Old Payment ($\mathbf{M_{old}}$) is \$2,000, Refinance Cost ($\mathbf{C_{refi}}$) is \$5,000, and you want to break even in 25 months ($\mathbf{T_{be}}$).
- Step 1: Calculate Required Monthly Savings ($C_{refi} / T_{be}$)
Required Monthly Savings $= \$5,000 / 25 \text{ months} = \$200 \text{ per month}$.
- Step 2: Apply the New Payment Formula ($\mathbf{M_{new} = M_{old} – \text{Savings}}$)
Substitute the values: $M_{new} = \$2,000 – \$200$.
- Step 3: Determine the New Monthly Payment
The calculation yields a maximum acceptable New Monthly Payment ($\mathbf{M_{new}}$) of **\$1,800.00**.
Frequently Asked Questions (FAQ)
Refinance costs typically include appraisal fees, loan origination fees, title insurance, attorney fees, and sometimes points paid to lock in a lower rate. You must include all of these upfront, out-of-pocket costs in the calculation.
What is a good break-even time?A “good” break-even time is subjective but generally, anything under 24 months is considered excellent. If the break-even time exceeds the number of months you expect to keep the mortgage, refinancing is probably not advisable.
If $\mathbf{M_{old} – M_{new}}$ is negative, what does that mean?If your Old Monthly Payment is less than your New Monthly Payment, your ‘savings’ are negative. This means you are increasing your monthly expense, often because you took cash out or switched to a shorter, more expensive term. In this case, there is no break-even point, only increased cost.
Does this calculate the total interest saved over the life of the loan?No, this calculator focuses only on the initial cost and monthly cash flow to find the break-even time. To find the total interest saved over the life of the loan, you need a separate loan comparison calculator.