Simple Mortgage Refi Break-Even

If you do a search, you will find dozens of mortgage refinance calculators on the internet, most on sites of companies that want to sell you a new loan. The big problem with calculating break-even (when the new lower interest rate, will cover the cost to refinance) is:

  • What happens to the difference in monthly payments
  • Where did the money used to pay for the cost to refinance come from.

The savings in payments has a utility value attached to it that can be expressed as an interest rate assumption. If the difference in payments are going to be put in a bank savings account, you might use that rate, but it could change. If it is going towards paying off credit card debt, you can use the credit card rate. Every situation is different. Even if the borrower is going to use the difference in payments to buy an appliance, there is an alternative interest rate the borrower would have had to pay to acquire that appliance.

The costs to refinance (points, escrow fees, title search, etc.) might come from savings, borrowing from a 401K, investments in the stock market, etc. This also would require an interest rate assumption. A rate of return was given up on the funds used to pay for the cost to refinance, that must be considered.

One model I like to use, requires no assumptions of outside interest rates.

  • The costs are financed in the new loan. We have that rate, its the new loan rate.
  • The same payment (the payment on the old loan) is used. The borrower is effectively investing the difference in loan payments at the new loan rate.

Now you simply line up two amortization schedules. One on the old loan and one on the new loan. The first month that the remaining principal balance on the new loan is less than or equal to the old loan balance, is the break-even month. In my opinion, this is the simplest, cleanest, and most accurate method to determine the break-even point of refinancing a mortgage.

Download workbook “REFI” from: 

Downloads Written in Excel 2013

Don Pistulka
Don Pistulka

Retired Credit Union CFO - Finance
Background: over 40 years in investments, asset/Liability management, banking, securities trader.
Worked for: California Credit Union, WesCorp, CalFed S&L, Crocker Bank, Carroll McEntee, Federal Home Loan Bank Board (D.C.), Western Asset Management, Security Pacific National Bank.


  1. […] Simple Mortgage Refi Break-Even – [email protected] – 09/09/2014 11/23/2015 APR, Excel Present / Future Values, Excel Spreadsheet, Rate 1 Comment on Simple Mortgage Refi Break-Even. If you do a search, you will find dozens of mortgage refinance calculators on the internet, most on sites of companies that want to sell you a new loan. […]

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