Recovering refinance costs
The tool calculates principal-and-interest payments on the same balance and new term at the old and new rates. Monthly savings are the difference, and closing costs divided by that saving give the first whole month in which the modeled savings recover those costs.
The default month of recovery
Refinancing $280,000 from 7.25% to 6.25% over 30 years lowers the modeled payment by $186.09, to $1,724.01. Dividing $6,000 of closing costs by that saving gives 32.24, so the displayed break-even point is 33 months.
Assumptions behind the comparison
The comparison assumes the old and new loans have the same remaining balance and the selected term is appropriate for both. It treats closing costs as cash paid once and does not add them to the new balance or charge interest on them.
A lower payment can still cost more
A lower payment alone is not proof of savings. Resetting a loan to a fresh 30-year term can lower the monthly amount while increasing the total interest paid over a longer remaining life.
Terms that need a fuller comparison
Taxes, insurance, mortgage insurance, points, lender credits, rate locks, and a sale before the break-even date are not modeled. A refinance with costs rolled into principal requires a total-cost comparison rather than this cash-cost recovery calculation.
Comparing recovery with ownership plans
Use the break-even month against a realistic ownership horizon, not an assumed full loan term. The lender's Loan Estimate provides the charges and rate conditions needed to replace these illustrative inputs.
Break-even is not the finish line
At 33 months, cumulative modeled payment savings merely equal the $6,000 cash cost; the refinance has not yet created a net saving. A planned move in two years would end before recovery, while a longer ownership period may justify a closer total-interest comparison. Rate-lock expiration and lender credits also need to be tied to the written offer, not a remembered rate.
Treat rate quotes as conditional
A rate can depend on points, credit profile, occupancy, property type, and a lock period. Record which version of the quote supplied the new rate so that the break-even estimate is not tied to an unavailable offer.
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It is an educational estimate, not financial, tax, or legal advice.