A refinance break-even calculator that tells you how many months it takes for a lower rate to recover the closing costs of refinancing or remortgaging. Essential before you remortgage: if you’ll move or repay before break-even, the switch costs you money.
How it works
The tool prices both loans over the same remaining term using the amortising payment formula M = P · r ⁄ (1 − (1+r)⁻ⁿ), where r is the monthly rate (annual rate ÷ 12 ÷ 100) and n is the months remaining. It computes the payment at your current rate and at the new rate on the same balance, takes the difference as the monthly saving, then divides the closing costs by that saving:
Break-even months = closing costs ⁄ monthly saving
The result is rounded up to a whole month. If the new rate doesn’t lower the payment, there’s no saving and no break-even.
Example
A £250,000 balance with 30 years remaining, refinancing from 6.5% to 5.0% with £4,000 in costs:
- Payment at 6.5%: about £1,580/month
- Payment at 5.0%: about £1,342/month
- Monthly saving: about £238
- Break-even: £4,000 ÷ £238 = about 17 months
| Closing costs | Monthly saving | Break-even |
|---|---|---|
| £2,000 | £200 | 10 months |
| £4,000 | £238 | 17 months |
| £6,000 | £150 | 40 months |
What drives the break-even point
Three factors pull break-even in opposite directions:
Rate drop — The bigger the rate cut, the larger the monthly saving, and so the shorter the break-even. A 1.5 percentage point drop produces roughly double the saving of a 0.75 point drop on the same balance.
Closing costs — The largest variable under your control. In the US, refinance closing costs typically range from 2–5% of the loan balance, covering origination fees, appraisal, title insurance, and legal costs. In the UK, a remortgage typically costs £500–£2,000 in arrangement fees, valuation, and legal fees, though some no-fee products shift the cost into a slightly higher rate. Always get a full fee schedule before comparing.
Remaining term — The calculator holds the remaining term constant when comparing rates, which isolates the rate effect. If you refinance into a brand-new longer term (for example, a 20-year remaining loan into a fresh 30-year mortgage), the monthly payment drops further — but you add years of interest. That reset is worth running as a separate calculation.
When refinancing is not worth it
Refinancing almost never makes financial sense if:
- You plan to sell, move, or pay off the loan before the break-even point arrives.
- The rate reduction is very small (under about 0.25–0.5 percentage points), since the savings take many years to recover even modest costs.
- You are very close to paying off the loan — the remaining interest savings are small in absolute terms.
- You are currently in a fixed-rate deal with a significant early repayment charge (ERC), which can add thousands to the effective closing cost.
If you plan to sell within two or three years, the break-even should be under 24 months before switching is likely to pay off. Everything runs in your browser.