Refinancing break-even

Only future money counts

Whatever you paid on the old loan is gone, so it is ignored on both sides. The question is what each path costs from today: for the current loan, the payments still to come minus the balance you owe now; for the new loan, all its payments plus any prepayment penalty minus that same balance. Both are compared on the cash needed to pay the old loan off, so a new loan with a deducted fee is grossed up the way the equal-cash method describes.

cost from today (keep)      = remaining payments − balance today
cost from today (refinance) = all new payments − balance today   (includes fee and penalty)

Months remaining come from your payment

Rather than asking how many months are left, the tool takes the payment you actually make and runs it against the balance and rate until the balance reaches zero. That gives the real remaining term, including a smaller final payment. If the payment does not cover a month's interest the balance would never fall, and the tool says so.

Break-even

After m payments, the cost so far on either path is the payments made plus the balance still owed minus the balance today. On the new loan that starts at the fee and penalty on day one. Break-even is the first month where the new path's cost so far is at or below the old path's and stays there. With no fee and a lower rate that is day one; a fee pushes it out; a higher rate or a much longer term can mean it never arrives.

Isolating the longer term

Most refinancing offers reset the clock, so the payment drops even when the rate barely moves. To separate the two effects the tool adds a third column: refinance, but keep paying what you pay today. That shows what the new rate alone is worth. It only appears when the new required payment is lower than your current one.

Worked example

$17,289.14 owed at 18%, paying $507.87 a month. New offer 10% for 60 months with no fee.

Refinancing saves about $2,337.06 over the life of the loan. It lowers your payment by $140.53 and adds 12 months to your payoff. If you keep paying your current $507.87 on the new loan, it is paid off in 41 months and saves $3,959.32.

Break-even on the refinance column is from day one; the refinance costs $4,751.45 from today against $7,088.51 for keeping the loan.

Reviewed 5 September 2026. No corrections since. Any change to this method is dated here and in the corrections log.