Break-even point
What is break-even point?
The break-even point is the month at which the accumulated savings from a refinance finally exceed what it cost you to get it. Before that month you are behind; after it you are ahead.
How it is calculated
Break-even = the first month where (cumulative cost of keeping your mortgage) − (cumulative cost of the new scenario) ≥ 0
What it means in practice
The simple version divides closing costs by the monthly payment reduction. That version is misleading, because it ignores that a longer term slows how fast you build equity.
A more honest calculation compares total cost including the balance still owed. This tool uses that method: payments made plus balance remaining minus cash received, compared against keeping your current mortgage.
If your break-even point falls after the date you expect to sell or refinance again, the refinance costs you money even though the monthly payment went down.