Use comparable payment amounts
Compare principal and interest on a consistent basis and separately identify changes to taxes, insurance and escrow. A payment decrease caused by refinancing into a longer term can create lower monthly bills while increasing the lifetime interest burden.
- Record the old and proposed note rate
- Compare remaining months on the old and new loans
- Keep tax and insurance assumptions consistent
Count real net costs
Loan charges, discount points, title and third-party fees can create refinance expenses; lender credits or permitted reductions may offset some items. When eligible costs are financed, they still raise your outstanding balance. Distinguish new escrow funding from true permanent financing fees.
- Request itemized Loan Estimates
- Separate prepaids and escrow balances from fees
- Account for changes in principal
Stress-test your plans
A basic calculated break-even of 24 months is less useful if you intend to sell in a year or change the loan again. Review projected balance and interest over your expected ownership horizon, including the effect of points and rate changes.
- Run the simple calculator as a first pass
- Compare five-year total interest and remaining balance
- Do not assume a future refinance will be available
Try a simple break-even test
Use comparable monthly payment savings and net closing costs. All starting values are examples you can change.
Simple screening measure only: costs divided by positive monthly savings, rounded up. It excludes interest differences, remaining loan balance, term extension, funds received, tax effects, cost capitalization and time value of money. A lower monthly payment can still result in a more expensive loan over time. Ask for a complete side-by-side Loan Estimate and amortization comparison.
Official information
Terms, loan rules, funding and eligibility can change. These references are for education; always confirm the current written terms with the appropriate agency and lender.
CFPB — Compare loan estimates ↗