The Break-Even Equation for Mortgage Refinancing
Refinancing a mortgage requires paying upfront closing costs (appraisal, title insurance, loan origination fees, recording charges), typically between 2% and 3% of the loan amount.
The mathematical break-even point is defined as:
Break-Even (Months) = Total Refinance Closing Costs ÷ Monthly Principal & Interest Savings
If you plan to stay in the home longer than the break-even horizon, refinancing yields positive net financial savings.