The Refinance Breakeven: Points vs. Rate

Rates have dropped. Your inbox is full of offers: "Refinance now and save $300/month!"

It sounds tempting. But in the mortgage industry, "Saving Monthly" != "Saving Money".

The Problem: The Friction Cost

Refinancing isn't free. Between origination fees, appraisal fees, title insurance, and "Discount Points" (prepaid interest to buy down the rate), closing costs can easily run $5,000 to $15,000.

The lender rolls these costs into your new loan. So, your balance goes UP, even if your rate goes DOWN.

The Agitation: The Moving Target

Here is the trap: How long will you stay in the house?

If you spend $10,000 in fees to save $200 a month, it will take you 50 months (over 4 years) just to break even.

If you sell the house or move in 3 years, you actually lost money by refinancing, even with the lower rate. You paid $10,000 upfront to save $7,200. You are in the red.

The Solution: Calculate the "Breakeven Month"

Never refinance based on the "Monthly Payment." Refinance based on the Breakeven Point.

If your Breakeven Point is 30 months away, and you plan to live there for 10 years, do it. If you might move for a new job in 2 years, throw the offer in the trash.

📱 The Amorti Simulation

Use AmortiApp to verify the lender's math.

1. Scenario A (Current Loan): Run a simulation for the remaining years of your current loan. Note the "Total Interest Remaining".
2. Scenario B (Refinance):
   • New Principal = Current Balance + Closing Costs.
   • New Rate = The lower rate.
   • New Term = 30 Years (Careful! Resetting the clock costs money).
3. Compare the Total Interest of A vs. B.

Often, you will find that extending a 22-year loan back to 30 years costs MORE in total interest, even with a lower rate.

Don't get sold. Get calculated.

Run Breakeven Analysis