How much of a rate drop justifies refinancing?

The old 'one full point' rule is a rough proxy — the real test is break-even months versus how long you'll stay. A 0.56-point drop on a $320,000 balance breaks even in about two and a half years here. Bigger balances justify smaller rate drops; smaller balances need bigger ones.

What's the catch with resetting to a 30-year term?

You're re-stretching the remaining 27 years back to 30, which lowers the payment but adds years of interest. Two honest fixes: refinance into a shorter term (20- or 15-year, usually at lower rates), or keep paying your old $2,253 on the new loan — the extra $197 goes to principal and the loan pays off years early.

What do refinance closing costs include?

Typically 2-6% of the loan: origination and underwriting fees, appraisal, title insurance, and recording fees. 'No-closing-cost' refinances roll the costs into the rate or balance — you still pay, just invisibly. Get loan estimates from 2-3 lenders; the fee spread between lenders is often larger than the rate spread.

Should I pay points to lower the rate further?

One point costs 1% of the loan upfront and typically cuts the rate ~0.25%. It's the same break-even logic on top: points pay off only if you keep the loan well past the point break-even, usually 5-7 years. If you might move or refinance again, skip them.

Does refinancing hurt my credit?

Briefly and mildly — a hard inquiry and a new account. Multiple mortgage inquiries within a 14-45 day window count as one for scoring purposes, so shop lenders freely inside two weeks. The score effect fades within months; the $220/month is forever (or at least for 30 years).

Tools · Home

Home · mortgages

Refinance break-even

Rates dropped. Is it worth it? Compare your current mortgage to a new one, watch cumulative savings cross zero, and see whether the break-even beats your plan-horizon.

Your current mortgage

Remaining balance$320,000

Current rate7.25%

Years remaining27 yr

New loan

New rate6.69%

New term30 yr

Closing costs$6,000

Your plan

Years you'll stay8 yr

If you move before the break-even month, you'll eat the closing costs. The plan-horizon above is what makes or breaks the deal.

Break-even

32 mo

Save $191/mo · $6,000 closing costs recouped in 2.6 years

Probably worth it. Over your 8-year horizon you'd net $12,303 after covering the closing costs.

Cumulative savings

horizon · 8 yr

Current payment (P&I)

$2,253

7.25% · 27 yr remaining

New payment (P&I)

$2,063

6.69% · 30 yr

Monthly savings

$191

Freed-up cash flow

Lifetime interest delta

−$12,488

Interest extra — resetting the clock costs you

Show the mathExpand →

Each loan's monthly P&I uses the standard amortization formula:

M = L · r(1 + r)ⁿ / ((1 + r)ⁿ − 1)

Break-even = closing costs ÷ monthly savings. Cumulative savings = monthly savings × months − closing costs. When the line crosses zero, you've earned the closing costs back.

Lifetime interest delta compares allinterest paid on the current loan vs. the new loan. A 30-year refi at a slightly lower rate can still cost more lifetime interest because you've reset the clock — that's why this matters.

We don't model prepayment penalties, discount points, or closing-cost financing (rolling costs into the loan). Ask your lender for a Loan Estimate and compare line-by-line.

Quick answer

When does a refinance from 7.25% to 6.69% pay for itself?

Refinancing a $320,000 balance (27 years left at 7.25%) into a 30-year loan at 6.69% — the Freddie Mac average for the week of August 6, 2026 — drops the payment from $2,253 to $2,063, saving about $191 a month. With $6,000 of closing costs, you break even in about 32 months. Stay in the home longer than that and the refinance wins; sell sooner and it doesn't.

~$191

Monthly savings

~32 months

Break-even

$6,000

Closing costs

6.69% (PMMS 8/6/26)

New rate used

Frequently asked questions

How we built this tool

How this break-even is calculated

Step 1

Both payments from the same amortization formula

Current and new monthly P&I are computed identically — the only differences are rate and term. That makes the month-over-month delta apples-to-apples.

Step 2

Break-even = closing costs ÷ monthly savings

Divide what you spend to refi by what you save each month. The quotient — in months — is when the refi actually starts putting money in your pocket.

Step 3

Plan horizon is the honest filter

If you sell or refi again before break-even, the closing costs never got recouped. Enter the years you realistically plan to stay — that's the number that decides this.

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