California Refinance Break-Even Calculator
Your refinance break-even point is the number of months required for monthly payment savings to exceed total closing costs. Most California refinances break even in 18-36 months.
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Your Break-Even Point
What Is Break-Even Analysis?
Break-even analysis calculates how long you must keep a refinanced mortgage before monthly savings offset upfront closing costs.
Simple Break-Even Formula:
Break-Even (months) = Total Closing Costs ÷ Monthly Payment Savings
California Break-Even Scenarios
Short Break-Even (Excellent)
Current: $450,000 @ 7.5% ($3,146/mo)
New: $450,000 @ 6.0% ($2,698/mo)
Costs: $9,000
Analysis: 20-month break-even. ✓✓ Strong candidate.
Medium Break-Even (Good)
Current: $700,000 @ 6.75% ($4,539/mo)
New: $700,000 @ 6.0% ($4,197/mo)
Costs: $14,000
Analysis: 41-month break-even. ✓ Good if staying 4+ years.
Long Break-Even (Questionable)
Current: $900,000 @ 6.25% ($5,540/mo)
New: $900,000 @ 5.75% ($5,251/mo)
Costs: $22,000
Analysis: 76-month break-even. ? Risky unless certain of long-term stay.
No-Cost Refinance (Immediate)
Current: $550,000 @ 7.0% ($3,659/mo)
New: $550,000 @ 6.375% (no costs)
Costs: $0
Analysis: 0-month break-even. ✓✓ Makes sense even for short term.
Advanced Break-Even Considerations
Total Cost Analysis: 15-Year vs 30-Year Refinance
Simple break-even only considers monthly cash flow savings, not total interest paid. A shorter-term loan may not have a traditional 'break-even' if the payment increases, but it can save you hundreds of thousands in interest.
Option A: 30-Year Refi
Rate: 6.0%
Payment: $2,698/month
Total Interest Paid: $520,680
Break-even: 24 months
✓ Lower monthly payment
Option B: 15-Year Refi
Rate: 5.25%
Payment: $3,609/month (Higher)
Total Interest Paid: $199,620
Break-even: N/A (payment higher)
✓ Saves $321,000 in interest
Conclusion: Choose based on cash flow needs vs. long-term wealth building priorities.
Factors That Affect Break-Even Time
Closing Costs
Lower closing costs = faster break-even. Negotiating fees can shave months off your timeline.
Rate Difference
A larger rate reduction (e.g., 1.5%) creates bigger monthly savings and a much faster break-even.
Loan Balance
Higher loan balances amplify savings. A 1% rate drop on a $900k loan saves more than on a $300k loan.
Payment Method
Paying costs in cash gives a clear calculation. Rolling them into the loan slightly reduces monthly savings.
California-Specific Break-Even Factors
- Property Taxes & HOA Fees: These costs typically don't change when you refinance, so they don't affect the break-even calculation, which is focused on the loan itself.
- PMI Elimination: If your refinance gets you to 20% equity and eliminates PMI, add the monthly PMI savings to your principal and interest savings. This can dramatically shorten your break-even period.
- Higher Closing Costs: California's title and escrow fees are often higher than the national average. Budget 3-5% for total closing costs, which can extend the break-even point.
Break-Even Decision Framework
Strong Yes
Break-even: ≤ 24 months
Plan to stay: 5+ years
Rate drop: 1.0%+
Probably Good
Break-even: 24-36 months
Plan to stay: 4+ years
Rate drop: 0.75-1.0%
Questionable
Break-even: 36-60 months
Plan to stay: Uncertain
Rate drop: < 0.75%
Poor Choice
Break-even: > 60 months
Plan to stay: < 3 years
Rate drop: < 0.5%
Frequently Asked Questions
What's a good break-even period for refinancing?
Most financial advisors recommend refinancing only if break-even is 36 months (3 years) or less, assuming you plan to stay in the home at least 1-2 years beyond that. A 12-24 month break-even is ideal.
Should I refinance if I'm moving in 2 years?
Only if your break-even is under 18-24 months. With a 2-year timeline, you need significant monthly savings to recoup closing costs quickly. A no-closing-cost refinance is often the best choice for short timeframes.
Does break-even include total interest savings?
No. Traditional break-even calculations only focus on recouping closing costs through monthly payment savings. Total interest savings over the loan's life are a separate, long-term benefit to consider.
How do I calculate break-even if eliminating PMI?
Add the monthly PMI savings to your principal and interest savings. For example, if your new payment is $300 lower and you also eliminate a $200 PMI payment, your total monthly savings is $500 for the calculation.
What if I'm doing a cash-out refinance?
A cash-out refinance often increases your monthly payment, meaning there is no traditional break-even point. You should evaluate the decision based on the interest rate of the cash you're taking out compared to other borrowing options like personal loans or credit cards.
Does a no-cost refinance always break even immediately?
Yes, in terms of upfront fees. However, you're accepting a higher interest rate (typically 0.25-0.5% more). The "true" break-even is when the extra interest you pay over time equals the closing costs you avoided. This is usually around 5-7 years.