A worked example
A $250,000 balance at 7.5% with 27 years left currently costs about $1,802 a month. Refinancing to 6.2% over a fresh 30-year term drops that to about $1,531 — saving roughly $271 a month. Against $5,000 in closing costs, that pays for itself in about 19 months.
Frequently asked questions
What does the break-even point actually tell me?
It's how many months of lower payments it takes to recover what you spend on closing costs. If you plan to move or refinance again before reaching that point, the refinance likely isn't worth it financially — staying put well past it is where the savings start to add up.
Why might my new payment be lower even with a longer term?
A lower rate and a reset, longer term both push the monthly payment down — but resetting the clock can mean paying more in total interest over the life of the loan even though the monthly payment looks better. Check the lifetime interest comparison, not just the monthly number.
What counts as closing costs on a refinance?
Typically origination fees, appraisal, title insurance, and similar charges — often 2-5% of the loan amount, similar to a purchase. Some lenders offer a 'no-cost' refinance that rolls these into a slightly higher rate instead of an upfront charge.
Is a lower rate always worth refinancing for?
Not automatically — a small rate drop on a loan you're close to paying off, or one you plan to leave soon, may not clear the closing costs before you move on. Compare the break-even point above to your actual plans.
This calculator provides estimates for general informational purposes only and is not financial advice. Actual refinance offers, fees and qualification depend on your lender, credit and the loan program.