Refinancing can save you thousands over the life of your loan, but only if the numbers make sense. This guide will show you how to calculate your break-even point and determine if refinancing is right for you.
Key Takeaways
- Break-even point = Total closing costs ÷ Monthly savings
- Refinancing typically makes sense if you’ll stay in your home longer than the break-even period
- Texas has no mortgage recording taxes, keeping closing costs lower than many states
- Common refinance goals: lower rate, shorten term, remove PMI, or switch from ARM to fixed
- Get a detailed break-even analysis before making a decision—no guesswork
What is a Break-Even Analysis?
A break-even analysis tells you how many months it will take for your monthly savings to offset the upfront costs of refinancing. Once you pass that break-even point, you’re saving money every month.
Simple formula: Break-even point (months) = Total closing costs ÷ Monthly savings
Example:
- Closing costs: $3,600
- Monthly savings: $150
- Break-even: 24 months
In this scenario, you’d need to stay in your home for at least 2 years to benefit from refinancing.
When Does Refinancing Make Sense?
Refinancing typically makes sense if you can answer “yes” to at least one of these:
1. Lower Your Interest Rate If current rates are at least 0.5% to 0.75% lower than your existing rate, refinancing could reduce your monthly payment and total interest paid.
2. Shorten Your Loan Term Refinancing from a 30-year to a 15-year mortgage increases your monthly payment but saves you tens of thousands in interest. This works well if your income has increased since you bought the home.
3. Remove PMI If your home value has increased and you now have 20% equity, refinancing into a conventional loan can eliminate private mortgage insurance.
4. Switch Loan Types Moving from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage provides payment stability, especially if you plan to stay in the home long-term.
Not sure if refinancing makes sense for your situation? Schedule a Discovery Call to review your options.
Costs to Consider in Texas
Refinancing isn’t free. Typical costs include:
- Appraisal: $400–$600
- Title search and insurance: $1,000–$2,000
- Origination and processing fees: 0.5%–1% of loan amount
- Recording fees and taxes
Texas doesn’t have mortgage recording taxes like some states, which keeps closing costs lower. However, property taxes and homeowner’s insurance (especially wind/hail coverage) may have increased since you bought, so factor those into your new monthly payment.
What This Means for Texas Homeowners
Property taxes in Texas can increase year over year. If your home’s assessed value has gone up significantly, your escrow payment will be higher even if your principal and interest drop. Always calculate your total monthly payment, not just P&I.
How to Run Your Own Break-Even Calculation
Here’s what you need:
- Current monthly payment (principal + interest only, not taxes/insurance)
- Estimated new monthly payment after refinancing
- Total closing costs (get this from your lender’s Loan Estimate)
Subtract the new payment from your current payment to get your monthly savings. Then divide closing costs by monthly savings to find your break-even point in months.
If you plan to stay in your home longer than the break-even period, refinancing likely makes sense.
Want to see how different rates affect your payment? Try the mortgage calculator to run the numbers.
What About “No-Closing-Cost” Refinances?
Some lenders offer no-closing-cost refinances, where closing costs are rolled into the loan or covered by a slightly higher interest rate. This can make sense if:
- You don’t have cash for closing costs
- You plan to move or refinance again within a few years
- The higher rate still results in meaningful savings
But remember: there’s no such thing as truly “free.” You’re either paying upfront or over time.
Should You Refinance Now?
It depends on your situation. If rates have dropped since you bought, if your credit has improved, or if you want to adjust your loan term, refinancing could save you money.
I run a detailed break-even analysis for every client considering a refinance. I’ll show you the exact costs, the monthly savings, and how long it will take to break even—so you can make a confident decision.
Common Refinancing Questions
Can I refinance if I have less than 20% equity? Yes, but you may need to pay PMI if you’re doing a conventional loan. FHA and VA loans have different rules.
How long does refinancing take? Typically 30–45 days from application to closing, similar to a purchase mortgage.
Will refinancing hurt my credit? The initial credit inquiry may cause a small temporary dip (5–10 points), but your score typically recovers within a few months.
Explore more guides on the blog or check out the FAQ page for answers to common mortgage questions.
Next Steps
If you’re considering refinancing, start with a free Discovery Call. I’ll walk you through your current loan, show you what’s available now, and calculate your exact break-even point.
No guessing. No pressure. Just clear numbers so you can decide with confidence.
Schedule a Discovery Call to discuss your refinancing options, or use the calculator to estimate your monthly payment.
This article is for general education and is not financial advice. Loan terms, rates, and requirements are subject to change and individual qualifications.