Refinancing 250,000 from 7% to 6%, with 5,000 in costs and the same 25 years left, lowers the payment by 156.19 a month and repays the costs in month 33. A cut to 6.5% takes until month 64; a cut to 5.5%, until month 22.
The break-even month is the costs divided by the drop in the monthly payment, rounded up. It counts only the payments. At the lower rate the balance also falls a little faster, so by that month the full saving is slightly larger than the payments alone show.
Three new rates
The same balance, term and costs in every row; the payment now is 1,766.95 a month:
| New rate | New monthly payment | Lower by | Costs repaid in month | Saved over the full term |
|---|---|---|---|---|
| 6.5% | 1,688.02 | 78.93 | 64 | 18,679 |
| 6% | 1,610.75 | 156.19 | 33 | 41,858 |
| 5.5% | 1,535.22 | 231.73 | 22 | 64,519 |
What the example leaves out
The new loan here runs for the same 25 years as what is left of the old one. Stretching the term lowers the payment further, but part of that comes from borrowing for longer, not from the lower rate. Taxes, and charges for repaying the old loan early, are left out.