How to calculate the break-even point
The Federal Reserve's method: take your new payment from your current one to get the monthly saving, then divide the closing costs by the monthly saving. That's how many months it takes to get the costs back.
Here it is with your numbers:
- Current payment: $280,000.00 at 8.25% over the 336 months left = $2,139.01.
- New payment: $280,000.00 at 7.18% over 360 months = $1,896.82.
- Monthly saving: $2,139.01 − $1,896.82 = $242.19.
- Break-even: $8,400.00 ÷ $242.19 = 34.68 months, so the costs are paid back by payment 35.
- Interest: $438,701.26 still to pay now − $402,852.05 on the new loan = $35,849.21.
It means refinancing saves you $27,449.21 over the life of the loan after closing costs, as long as you keep the new loan for at least 35 months.
The Fed's worksheet also takes income tax off the saving, for people who deduct mortgage interest. We leave that out; if you itemize, your break-even comes a little later.
Source Federal Reserve · A consumer’s guide to mortgage refinancings ↗CFPB · How lenders calculate monthly payments ↗
Compare new loan terms
A lower payment isn't the whole story. Starting a new 30-year loan restarts the clock, so you can pay less each month and more interest overall. A shorter term usually costs more each month and much less in total.
| New term | Payment | Lifetime saving |
|---|---|---|
| 15 yearsYours | $2,544.98 | $252,204.68 |
| 20 yearsYours | $2,201.19 | $182,014.15 |
| 30 yearsYours | $1,896.82 | $27,449.21 |
Lifetime saving: what you'd pay to finish your current loan, minus what the new loan and its closing costs cost in all. A minus sign means it costs more.
When refinancing isn't a good idea
The Federal Reserve lists three cases: you've had your mortgage a long time (late in a loan most of each payment already goes to the balance, and a new loan starts over with mostly interest), your loan has a prepayment penalty, and you plan to move in the next few years, before the savings cover the costs.
Adding the closing costs to the loan means nothing to pay up front, but you repay those fees with interest over the life of the loan. A “no-cost” refinance can also mean a higher rate for the whole loan.
FAQs
How do I calculate my refinance payment?
Use the standard loan formula on the new loan amount: M = P × r ÷ (1 − (1 + r)^−n), where r is the new rate ÷ 12 and n is the number of months. If you add the closing costs to the loan, include them in P.
Is it worth refinancing from 7% to 6%?
On a $300,000 30-year loan the payment drops from $1,995.91 to $1,798.65, $197.26 a month. With $9,000.00 of closing costs (3%), that takes 46 months to pay back. It's worth it if you keep the loan longer than that.
Source Federal Reserve · A consumer’s guide to mortgage refinancings ↗
How much does it cost to refinance a $300,000 loan?
The Federal Reserve says it's not unusual to pay 3 – 6% of what you owe in refinancing fees: $9,000.00 – $18,000.00 on $300,000. That's on top of any prepayment penalty on your current loan.
Sources
- Federal Reserve: A consumer’s guide to mortgage refinancings
- CFPB: How lenders calculate monthly payments
- Freddie Mac: Mortgage rates (week of 2026-11-05)