How to Calculate Your Break-Even Point When Refinancing (2026 Guide)

How to Calculate Your Break-Even Point When Refinancing (2026 Guide)

One of the most important questions to ask before refinancing is:

“How long will it take me to recover the cost?”

That’s your break-even point.

After helping Washington homeowners with mortgages for over 25 years, I can tell you this:

Refinancing isn’t just about getting a lower rate.
It’s about making sure the math works for your timeline.

Let’s walk through how break-even works — and when it matters most.

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What Is a Break-Even Point?

Your break-even point is the amount of time it takes for your monthly savings to equal the cost of refinancing.

In simple terms:

How many months will it take before the savings outweigh the costs?

If you plan to keep your home longer than that timeline, refinancing may make sense.

If you plan to sell sooner, it may not.

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The Simple Break-Even Formula

Here’s the basic formula:

Total Closing Costs ÷ Monthly Payment Savings = Months to Break Even

Example:

• Closing costs: $4,000
• Monthly savings: $200

$4,000 ÷ $200 = 20 months

Your break-even is 20 months.

If you plan to stay in your home longer than 20 months, refinancing could be worth considering.

Another simple way to calculate your break-even period is to review the amortization schedule of the proposed refinance to see how many months it will take to return to your current principal balance.

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Real-World Refinance Examples

Let’s look at a few simplified scenarios.

Example 1: Rate & Term Refinance

Current rate: 6.75%
New rate: 6.00%
Loan balance: $500,000
Monthly savings: $225
Closing costs: $5,000

Break-even:
$5,000 ÷ $225 = 22 months

If you plan to stay longer than 22 months, this may make sense.

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Example 2: FHA to Conventional (Removing Mortgage Insurance)

Current loan: FHA
Monthly mortgage insurance: $350
Rate improvement: modest

Even if the rate change is small, removing mortgage insurance could significantly increase monthly savings.

If savings total $400 per month and costs are $6,000:

$6,000 ÷ $400 = 15 months

Sometimes mortgage insurance removal shortens the break-even dramatically.

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Example 3: Smaller Rate Drop (Less Than 1%)

Current rate: 6.75%
New rate: 6.10%

Even without a full 1% drop, break-even could still be reasonable depending on loan size and costs.

This is why the “1% rule” isn’t the only factor.

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When Break-Even Doesn’t Tell the Whole Story

Break-even is important — but it’s not everything.

Here’s what else matters:

Are You Resetting Your Loan Term?

If you refinance into a new 30-year loan after already paying for 5 years, your timeline changes.

You may lower your payment — but extend how long you’re in debt.

We always look at total interest over time.

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Are You Planning to Move Soon?

If your break-even is 30 months and you’re planning to sell in 18 months, refinancing likely doesn’t make sense.

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Are You Accessing Equity?

If you’re doing a cash-out refinance for a renovation, ADU, or debt consolidation, the goal may not be monthly savings.

Break-even may not be the primary metric.

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Refinancing in Washington State

In many parts of Washington — including King, Pierce, and Snohomish Counties — homeowners have seen strong appreciation.

That increased equity can:

• Improve loan pricing
• Help remove mortgage insurance
• Reduce risk-based adjustments

Because Washington has no state income tax, changes to your mortgage payment directly affect your monthly cash flow.

Local analysis matters.

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Common Break-Even Mistakes

Here are mistakes I often see:

• Focusing only on the rate
• Ignoring mortgage insurance removal
• Forgetting about loan term reset
• Not calculating total interest savings
• Assuming refinancing always requires cash at closing

The goal isn’t just to “refinance.”
The goal is to improve your financial structure.

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How I Help Clients Evaluate Break-Even

When I review a refinance scenario, I look at:

• Current loan balance
• Current payment breakdown
• New loan structure
• Total cost
• Monthly savings
• Timeline in the home

Then we make a decision based on clarity — not headlines.

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Frequently Asked Questions About Break-Even

What is a good break-even timeline?

There’s no universal number, but many homeowners look for 18–24 months or less. It depends on how long you plan to keep the home.

Does a 1% rate drop guarantee refinancing makes sense?

No. The break-even calculation matters more than the percentage drop alone.

What if I don’t plan to stay long?

If you plan to sell before reaching your break-even point, refinancing may not be financially beneficial.

Can I refinance without paying closing costs?

Some refinances can be structured to minimize upfront costs, but those costs are typically accounted for in the loan structure.

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Final Thought

Break-even is not about guessing.

It’s about running the numbers.

If you’d like a personalized refinance review, I’m happy to show you:

• Your break-even timeline
• Your total interest comparison
• Whether refinancing improves your overall financial picture

No pressure. Just clarity.

Related Resources

• Refinance Options Overview
• Mortgage Programs for Refinancing
• Get a Personalized Rate Quote
• Sign-up for Rate Watch
• Apply for a Mortgage
• Mortgage Refinance Guide for 2026