Refinance Break-Even: When Does a Lower Rate Pay for Its Fee?

You owe $250,000 with 300 months left at 7.25%, paying $1,807.02 a month. Another lender offers 6.25% for a fee of 2% of the balance, or $5,000. The new payment would be $1,649.17, which saves $157.85 a month.

The fee is paid on day one; the savings arrive a little at a time. They catch up with the fee in month 32. Keep the loan to the end and you come out $42,349.94 ahead. Sell the house or pay the loan off in year two and the refinance has cost you money. That month-32 point, the break-even month, is the most useful single number for judging a refinance offer.

What should you compare?

A refinance offer is more than a lower rate. Put these side by side:

• Monthly saving — the old payment minus the new one, for the same balance and the same months left.
• Fee — everything you pay to switch, expressed as a percentage of the balance.
• Break-even month — when the monthly savings add up to the fee. Before it, you are behind; after it, you are ahead.
• Total saving (after fee) — the interest you avoid over the rest of the loan, minus the fee.
• How long you will keep the loan — if you might sell, move or pay off early before the break-even month, the offer does not pay.

Refinance offers at a glance

$250,000 with 300 months left at 7.25% (current payment $1,807.02), compared with different offers:

1. How the break-even month is worked out

Best for: understanding exactly what the result means.

Both loans are equal-payment loans on the same balance over the same number of months. Only the rate and the fee differ:

Current payment = $250,000 at 7.25% over 300 months = $1,807.02
New payment     = $250,000 at 6.25% over 300 months = $1,649.17
Monthly saving  = 1,807.02 − 1,649.17               = $157.85
Fee             = 2% × $250,000                     = $5,000.00
Break-even      = 5,000.00 ÷ 157.85 = 31.7          → month 32

The total saving compares the interest on the two loans and then subtracts the fee:

Current loan interest   = $292,103.60
New loan interest       = $244,753.66
Total saving after fee  = 292,103.60 − 244,753.66 − 5,000 = $42,349.94

2. Small rate cuts take much longer to pay back

Best for: offers only a little below your current rate.

The fee stays the same whatever the rate cut, so a smaller cut means a smaller monthly saving and a much later break-even. With a 2% fee and 300 months left:

• At 6.75%, you save $79.74 a month and break even in month 63, more than five years in.
• At 7.00%, you save $40.07 a month and break even in month 125.
• At 7.14%, you save $17.68 a month and break even in month 283, with just $303.19 of total saving.
• At 7.15%, you save $16.08 a month. Over 300 months that is $4,824, less than the $5,000 fee, so the app shows "Never breaks even — the new offer costs more."

In other words, for this loan any offer above 7.14% with a 2% fee loses money, even though the monthly payment goes down.

3. Fewer months left means less to gain

Best for: loans that are already years into their term.

Keep the same $250,000 balance, the same 7.25% → 6.25% offer and the same 2% fee, but change the months left:

With 36 months left, the payment still drops by $114.04, but covering the $5,000 fee would take 44 months. There are only 36, so the offer never breaks even. The later in a loan you refinance, the fewer months you have to earn back the fee.

4. Watch for longer terms, teaser rates and flat fees

Best for: offers that change more than the rate.

A longer term. The tool keeps the months left the same on both sides, which is the fair comparison. Some offers also stretch the loan. A new 360-month loan of $250,000 at 6.25% costs $1,539.29 a month, which looks $267.73 cheaper than your current payment. But its total interest is $304,147.71, more than the $292,103.60 left on your current loan, before any fee. To check an offer like this, calculate the new loan in the main calculator and compare the total interest.

A teaser rate. The tool uses one new rate for all the remaining months. If the offer is a low fixed rate for a few years and then a floating rate, the headline rate will overstate the saving. As a rough check, also enter the rate you expect after the promotion ends. The teaser rate guide shows how to model the two phases.

A fixed-amount fee. The Refinance fee (% of balance) field takes a percentage. Divide the amount by the balance: $3,000 on $250,000 is 1.2%, which moves break-even forward to month 20. If you pay several costs to switch, add them up first.

5. How to compare a refinance offer in Loan Calculator

Best for: checking an offer before you sign.

1. Find your remaining balance and the months left. Your lender's statement shows them, or read the remaining balance for the current month from the amortization schedule in the app.
2. Open Refinance comparison from the Tools tab, or tap the chip with the same name under the results on the main screen. The fields start empty; nothing is copied from your last calculation.
3. Under Current loan (remaining), enter Remaining balance, Current rate (%/year) and Remaining term (months).
4. Under New offer, enter New rate (%/year) and Refinance fee (% of balance). Leave the fee empty if there is none.
5. Tap Compute. You see Current payment, New payment, Monthly saving, Fee and Total saving (after fee), followed by "Break-even at month 32" or "Never breaks even — the new offer costs more."
6. Change the new rate or the fee and tap Compute again to test other offers.

Refinance comparison is a Pro tool. Without Pro, you can unlock it for 24 hours with 2 credits.

Which refinance offer should you choose?

FAQ

Why does the app say "Never breaks even" when my payment goes down?

Because the monthly saving, added up over the months you have left, is less than the fee. With 36 months left, saving $114.04 a month recovers only $4,105.44 of a $5,000 fee. The same message appears when the new rate is higher than your current one.

Can I compare an equal principal loan or a loan with a different term?

No. The tool compares two equal-payment loans with the same balance and the same months left. For other cases, calculate each loan separately in the main calculator and compare the total interest.

Does the break-even month include the interest I could earn on the fee?

No. It is simply the fee divided by the monthly saving, rounded up to a whole month. If you would otherwise invest the fee, the true break-even comes a little later.

Will a lender's numbers match the app exactly?

They should be close. The app uses the annual rate ÷ 12 for monthly interest; lenders may count actual days, round differently or charge fees the tool does not include. Treat the results as estimates.

Does the app work offline?

Yes. The comparison runs entirely on your device and works with no internet connection. Your balance and rates stay on your phone.