How the break-even is calculated
Refinancing replaces your current loan with a new one and comes with closing costs. The break-even point is the month when what you have saved on payments covers those costs. This calculator also counts the difference in your loan balance, so rolling costs into the new loan or restarting a 30-year term does not make the refinance look better than it is.
A lower payment is not the whole story. A new 30-year loan can lower your payment but cost more in total because it restarts the clock, while a shorter term may raise the payment but save a lot of interest. The totals at the right show both sides.
Refinance questions
How do I know if refinancing is worth it?
Compare how long it takes to break even with how long you expect to keep the loan. If you will keep the home well past the break-even point and the total cost of the new loan is lower, refinancing is usually worth considering. If you might sell or refinance again before breaking even, it usually is not.
How much does it cost to refinance a mortgage?
Closing costs often run about 2% to 5% of the loan amount, including lender fees, appraisal, title and recording. FHA streamline refinances also include a new 1.75% upfront mortgage insurance premium, which can be partly offset by a refund if your FHA loan is less than three years old, and VA streamline refinances usually carry a 0.5% funding fee unless you are exempt.
What is an FHA or VA streamline refinance?
A streamline refinance lets borrowers with an existing FHA or VA loan refinance into a new loan of the same type with less paperwork, often without a new appraisal or full income verification. The VA version is called an Interest Rate Reduction Refinance Loan. Both generally require that the new loan provide a real benefit, such as a lower rate or payment.
Can refinancing remove my FHA mortgage insurance?
Yes, if you refinance into a conventional loan with at least 20% equity, there is no mortgage insurance on the new loan. With FHA loans that keep mortgage insurance for the life of the loan, this can be one of the biggest savings, even when the interest rate barely changes.
Should I roll closing costs into the new loan?
Rolling costs into the loan means less cash at closing, but you borrow more and pay interest on those costs for years. It can make sense when cash is tight or the savings are large, as long as you still break even within the time you expect to keep the loan.
Sarah Baraz is based in San Antonio and licensed in Texas, Florida and California. Educational estimate only. This is not a loan offer, rate quote or commitment to lend. Eligibility for streamline refinances, appraisal requirements, mortgage insurance and fees depend on your loan and program rules. The example rate is Freddie Mac's Primary Mortgage Market Survey national average for the week shown and is not available to every borrower. Cash-out refinances in Texas follow separate rules and are not covered by this calculator.