Feb 27, 2026
Should I Refinance? How to Calculate Your Break-Even Point
30-year refi rates hit ~6.16% in February 2026 - near a 3-year low. Use the break-even formula to find out if refinancing makes sense for your loan balance and rate, with verified numbers.
Mortgage rates touched a three-year low in February 2026, with the average 30-year refinance rate settling around 6.16%. For the roughly one in five homeowners currently carrying a mortgage at 6% or higher - many who locked in above 7% in 2022 and 2023 - that gap represents real, calculable money.
But refinancing is not free. Closing costs typically run 2-3% of the new loan amount. The central question is whether your monthly savings will exceed those costs before you sell, move, or refinance again.
That calculation has a name: the break-even point. Here is exactly how to use it.
The Break-Even Formula
The math is simple:
Break-even (months) = Total closing costs divided by monthly payment savings
If refinancing costs $17,500 and saves $506 per month, you break even in 35 months -- just under three years. Every month after that is net savings. Every month you leave the home before month 35, you have paid more than you saved.
Real Numbers: $700,000 Balance, From 7.25% to 6.16%
This scenario represents a homeowner who bought or refinanced in 2022-2023 at prevailing rates, now looking at today's market.
Existing loan: $700,000 at 7.25%, 30-year fixed Current monthly payment: $4,775/month
Proposed refi: $700,000 at 6.16%, 30-year fixed New monthly payment: $4,269/month
Monthly savings: $506 Annual savings: $6,073
Closing Cost Estimate | Break-Even Point |
|---|---|
2.0% ($14,000) | 28 months (2.3 years) |
2.5% ($17,500) | 35 months (2.9 years) |
3.0% ($21,000) | 41 months (3.5 years) |
If you plan to stay in the home for 5+ years, this refinance generates substantial net savings at any closing cost level. If you expect to sell in 2-3 years, the numbers become marginal.
How Rate Reduction Affects the Math
Not everyone is refinancing from 7.25%. Here is how the savings and break-even timeline shift based on starting rate, all refinancing to the current ~6.16% average on a $700,000 balance (using 2.5% closing costs = $17,500):
Current Rate | Monthly Savings | Annual Savings | Break-Even |
|---|---|---|---|
6.50% | $155/mo | $1,864/yr | 113 months (9.4 years) |
6.75% | $271/mo | $3,253/yr | 65 months (5.4 years) |
7.00% | $388/mo | $4,656/yr | 45 months (3.8 years) |
7.25% | $506/mo | $6,073/yr | 35 months (2.9 years) |
7.50% | $625/mo | $7,504/yr | 28 months (2.3 years) |
The further above 7% your current rate, the more compelling the case for refinancing now. A homeowner at 7.5% breaks even in 28 months -- a straightforward decision for anyone planning to stay long-term. A homeowner at 6.5% breaks even in over 9 years, making the decision significantly more dependent on how long they intend to stay.
The 1% Rule -- and Why It's Outdated
For years, conventional wisdom held that refinancing only made sense with at least a 1% rate reduction. That rule made more sense on smaller loan balances with lower closing costs.
On a $700,000 loan today, a 0.5% rate reduction saves $313/month -- $3,756/year. With 2.5% closing costs of $17,500, that is a 56-month break-even. Potentially worth it for homeowners with long time horizons.
Today, financial advisors generally suggest a 0.50-0.75% rate drop can justify refinancing on larger balances, provided the break-even timeline fits your plans. The right test is not a rule of thumb -- it is your specific numbers run through the formula.
What Counts Toward Closing Costs
On a $700,000 refinance, expect to pay in the range of $14,000-$21,000 (2-3% of loan), typically including:
Loan origination fees of $3,500-$7,000, an appraisal of $750-$1,500, title insurance of $2,000-$4,000, escrow and attorney fees of $1,500-$3,000, recording fees of $500-$1,000, and prepaid interest and escrow reserves of $3,000-$6,000.
Some lenders offer no-closing-cost refinances where fees are rolled into the loan or exchanged for a slightly higher rate. If you choose this path, there is no break-even calculation to run -- but you are effectively financing the closing costs and may pay more in total interest over the life of the loan.
One Variable People Miss: Resetting the Clock
A refinance replaces your existing mortgage with a new one. If you are 7 years into a 30-year loan and you refinance to a new 30-year, you will be paying on the home for 37 years total. The early years of a new loan are heavily interest-weighted, meaning more of each payment goes to interest and less to principal in the years immediately following the refinance.
If you want the payment reduction without the term extension, you can often shorten the term. A 20- or 15-year refinance costs more per month but avoids the clock-reset problem and dramatically reduces total interest paid. This is worth running through the calculator alongside a standard 30-year comparison.
When Not to Refinance
Even at three-year lows, refinancing is not the right move for everyone. It is probably not worth it if you plan to sell within 2-3 years and cannot reach break-even, if you are far into your existing loan and resetting would send you back to interest-heavy early amortization, if your credit has declined since origination and the rate you qualify for is not as favorable as averages suggest, or if rolling closing costs into the loan balance extends your total interest exposure significantly.
Run the Numbers on Your Loan
The $700,000 baseline used throughout this article may not match your situation. Hauser's refinance calculator lets you input your current balance, rate, remaining term, and expected closing costs to see your exact monthly savings, break-even timeline, and total interest comparison between keeping your current loan and refinancing. Run the numbers on your specific loan before making the call.
Sources
Norada Real Estate, Refinancing Your Mortgage Now Could Save You Thousands Before Rates Rise, February 2026: https://www.noradarealestate.com/blog/refinancing-your-mortgage-now-could-save-you-thousands-before-rates-rise/
Norada Real Estate, What Are the Typical Costs of Refinancing a Mortgage in 2026?: https://www.noradarealestate.com/blog/what-are-the-typical-costs-of-refinancing-a-mortgage-in-2026/
CNBC, Mortgage Rates Fall Below 6% -- How to Decide if Refinancing Is Worth It, February 23, 2026: https://www.cnbc.com/2026/02/23/mortgage-rates-fall-bellow-6-percent-how-to-decide-if-refinancing-is-worth-it-for-you.html
Rocket Mortgage, Refinance Break-Even Point: https://www.rocketmortgage.com/learn/refinance-break-even
NerdWallet, How to Calculate the Break-Even Point on a Mortgage Refinance: https://www.nerdwallet.com/mortgages/learn/if-you-refinance-a-mortgage-when-will-you-break-even
Bankrate, Refinance Calculator: https://www.bankrate.com/mortgages/refinance-calculator/
Freddie Mac Primary Mortgage Market Survey, week of February 26, 2026: 30-year fixed 5.98%; 15-year fixed 5.44%.
All calculations: M = P x [r(1+r)^n] / [(1+r)^n - 1]. Break-even = total closing costs / monthly savings.