● Money & small business
Is refinancing worth it? Break-even months for a $300,000 mortgage, and the trap in resetting to 30 years
The usual rule for a refinance: divide the closing costs by the monthly savings, and if you'll stay longer than that many months, refinance. It's a fair first check, but it misses two things. A new 30-year loan pays down principal more slowly than the loan you have now, and restarting the clock can mean paying more in total even at a lower rate. Below, both are worked out month by month for one loan. Run your own loan in the refinance calculator.
The example
You owe $300,000 with 28 years left. You can refinance into a new loan for the same $300,000 with $6,000 of closing costs (2%), paid in cash. Payments are standard amortization with interest rounded to the cent each month. Two break-even measures:
- Simple: closing costs ÷ monthly payment savings.
- True: the first month in which the payments you've saved plus the difference in what you still owe add up to the $6,000. This is the month you're actually better off if you sold or paid off the home.
Refinancing into a new 30-year loan
| Current rate → new | Payment now → new | Saved a month | Simple break-even | True break-even | Lifetime total paid |
|---|---|---|---|---|---|
| 8% → 7% | $2,240.28 → $1,995.91 | $244.37 | 25 months | 25 months | $28,205 less |
| 8% → 6.5% | $2,240.28 → $1,896.20 | $344.08 | 18 months | 17 months | $64,093 less |
| 8% → 6% | $2,240.28 → $1,798.65 | $441.63 | 14 months | 13 months | $99,214 less |
| 7.5% → 7% | $2,138.60 → $1,995.91 | $142.69 | 43 months | 51 months | $5,951 more |
| 7.5% → 6.5% | $2,138.60 → $1,896.20 | $242.40 | 25 months | 25 months | $29,936 less |
| 7.5% → 6% | $2,138.60 → $1,798.65 | $339.95 | 18 months | 17 months | $65,057 less |
| 7.5% → 5.5% | $2,138.60 → $1,703.37 | $435.23 | 14 months | 13 months | $99,362 less |
| 7% → 6.5% | $2,038.83 → $1,896.20 | $142.63 | 43 months | 51 months | $3,594 more |
| 7% → 6% | $2,038.83 → $1,798.65 | $240.18 | 25 months | 25 months | $31,527 less |
| 7% → 5.5% | $2,038.83 → $1,703.37 | $335.46 | 18 months | 17 months | $65,832 less |
"Lifetime total paid" compares every remaining payment plus the $6,000 with every remaining payment on the current loan.
The half-point trap
A half-point drop into a new 30-year loan saves about $143 a month, and the simple rule says it pays off in 43 months. The true break-even is 51 months, because the new loan's early payments are mostly interest on a longer schedule. And over the whole loan you pay $3,594–$5,951 more, because you've added two years of payments.
Keep the term the same instead, a new loan with 28 years to match, and the picture flips:
| Refinance into 28 years | Saved a month | Simple break-even | True break-even | Lifetime total paid |
|---|---|---|---|---|
| 7% → 6.5% | $97.78 | 62 months | 48 months | $26,851 less |
| 7.5% → 7% | $99.77 | 61 months | 48 months | $27,530 less |
| 7.5% → 6.5% | $197.55 | 31 months | 24 months | $60,382 less |
The monthly saving is smaller, so the simple rule looks worse, but the true break-even is sooner: the faster paydown counts in your favor. If a lender only offers 30 years, you get nearly the same result by paying the 28-year payment on the 30-year loan.
Refinancing into a 15-year loan
The payment goes up, so there's no monthly saving, but the balance falls much faster. True break-even (payments plus balance) and the lifetime difference:
| Current rate → new 15-year | Payment goes up by | True break-even | Lifetime total paid |
|---|---|---|---|
| 8% → 6.5% | $373.04 | 15 months | $276,331 less |
| 7.5% → 6% | $392.97 | 15 months | $256,890 less |
| 7.5% → 6.5% | $474.72 | 21 months | $242,175 less |
| 7% → 6% | $492.74 | 21 months | $223,360 less |
| 7% → 5.5% | $412.42 | 16 months | $237,818 less |
Most of that lifetime difference is the 13 fewer years of payments, not the rate. Paying extra on your current loan would also shorten it; the refinance is worth it when the lower rate saves more than the $6,000.
What to take from it
- A full point or more usually pays off within about 2 years here (13–25 months true break-even in the tables above).
- For a half point, compare on the same term. Resetting to 30 years can make a lower rate cost more overall.
- Rolling the closing costs into the loan means borrowing them at the new rate, so the break-even is later than shown here.
Left out: tax effects, what the monthly savings could earn if invested, points bought to lower the rate, and escrow changes. All figures come from a cent-rounded month-by-month amortization like the one in our tested mortgage spreadsheet, and every true break-even month was re-checked with the closed-form balance formula (0 differences). Not financial advice. More on paying down faster: what extra mortgage payments save and 15 vs 30-year mortgage.