Refinance Break-Even Calculator
Work out whether refinancing a mortgage pays: the new payment, interest saved, cost of switching and how many months until it breaks even.
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Refinancing replaces an existing loan with a new one at a better rate. It is not free — there are arrangement, legal and valuation fees, and sometimes a charge on the new mortgage — so a lower rate alone does not make it worthwhile.
Two conditions have to hold: the interest saved must exceed the switching cost, and you must keep the loan past the break-even month. Sell or repay before then and refinancing lost you money.
The calculation
Work out the payment at both rates over the remaining term, take the difference, then divide the switching cost by that monthly saving to get the break-even month. Net saving is the total interest avoided minus the cost of switching.
Worked example
A 250,000 balance with 20 years left, moving from 7% to 5.8%. The payment falls from about 1,938 to 1,762 — a saving of 176 a month. With 2,000 of costs, break-even arrives in 12 months, and the net saving over the remaining term is roughly 40,200.
Keep the term the same
Lenders often present a refinance as a lower payment over a fresh full term. That lowers the monthly figure and can increase total interest. Hold the remaining term constant, as this calculator does, and take the benefit as reduced interest.
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Create your free property pageFrequently asked questions
When is refinancing not worth it?
When only a few years remain, because most of the interest is already paid; when the rate gap is under about half a percent, because fees eat the saving; or when an early-repayment charge on the existing loan exceeds the benefit.
Should I ask my current lender first?
Almost always. Retaining a borrower is cheaper for a lender than acquiring one, so a written offer from a competitor frequently produces a matching rate for a small fee — the same saving with none of the paperwork.
Is refinancing a fresh application?
Yes. Income, employment, credit record and the property are all assessed again at today standards, not the ones that applied originally. If your circumstances have weakened since, confirm eligibility before paying any fee.
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