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Should You Refinance? The Break-Even Month in One Division

By Smart Budget Sheets November 10, 2026
The refinance break-even month in one division, and the term-reset trap.

Lenders are happy to tell you how much a refinance lowers your monthly payment. The number that decides whether it is worth it is different: how many months it takes for the savings to repay the cost of refinancing.

The one-line check

Break-even (months) = total closing costs ÷ monthly payment saving.

Example: $250,000 balance, 7.0% now, offered 6.25%. On a new 30-year loan the payment drops from about $1,663 to about $1,539, a saving of about $124 a month. Closing costs of $5,000 give a break-even of about 40 months, a little over 3 years.

Three things that change the answer

  1. How long you will keep the loan. If you may move or sell within the break-even period, the refinance loses money.
  2. The term reset. If you are 6 years into a 30-year loan and refinance into a new 30-year loan, part of the lower payment comes from stretching the debt over 36 years in total. Compare total interest, or refinance into a shorter term.
  3. Costs rolled into the loan. “No-cost” offers usually mean a higher rate or the costs added to the balance. They are still costs.

A cleaner comparison

Compare the remaining interest on the current loan with the total interest plus closing costs on the new one, over the same number of years you expect to keep it. If the new loan wins clearly and the break-even is well inside your time horizon, it is worth a serious look.

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General information, not financial advice. Figures are rounded examples.

#personalfinance #budgeting #mortgage
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