The Refinance Breakeven Point: Is It Time to Switch?

"Should I refinance?" is really two questions. Will the new loan save me money each month, and will I keep it long enough for those savings to cover what the refinance costs? The second question has a name: the breakeven point. Here's how I work it out with clients, the costs people forget, and the Texas rules that change the picture if you want cash out.

Breakeven (in months) = total refinance costs ÷ monthly savings

Here's an example with round numbers. Say a refinance costs $6,000 and lowers your principal-and-interest payment by $200 a month. $6,000 ÷ $200 = 30 months. If you'll keep the home and the new loan longer than about two and a half years, you come out ahead on payments. If you might sell or refinance again before then, you probably won't.