Conventional · Rate-and-term refinance · Illustrative example
When might refinance points pay for themselves?
Divide the additional upfront cost by monthly principal-and-interest savings to estimate a simple break-even period.
This example uses a $350,000 new loan on a $500,000 property, or 70% LTV. It does not compare against an existing loan or include financed costs. For illustration, assume a primary single-family property and a 30-day lock. Actual lock pricing and eligibility vary.
What are the key numbers?
| Property value | $500,000.00 |
|---|---|
| Down payment or existing equity | $150,000.00 |
| Loan amount | $350,000.00 |
| Loan-to-value ratio | 70.0% |
| Loan term | 30 years, fixed |
How do the options compare?
| Measure | Option A | Option B |
|---|---|---|
| Interest rate | 6.75% | 6.375% |
| Points (negative means credit) | 0% | 1% |
| Points cost or credit | $0.00 | $3,500.00 |
| Monthly principal and interest | $2,270.09 | $2,183.54 |
Option B costs $3,500.00 more upfront and saves $86.55 per month in principal and interest. The simple break-even is 41 months.
How does the math work?
Loan-to-value is loan amount divided by property value. Points or credits equal the loan amount multiplied by the percentage. Monthly principal and interest uses the fixed-rate amortization formula. Simple break-even divides added upfront cost by monthly savings, rounded up to a whole month.
How sensitive is the payment to the rate?
Holding the balance and term constant, these illustrative rates change principal and interest only; points and fees may also change in actual offers.
| Rate | Monthly principal and interest |
|---|---|
| 6.5% | $2,212.24 |
| 6.75% | $2,270.09 |
| 7% | $2,328.56 |
When might the answer change?
A simple break-even ignores tax effects and changing loan balances; compare full loan estimates and your expected time in the home. Rates, points, fees, credits, loan eligibility, funding fees, taxes, insurance and actual closing dates vary. APR is not calculated because complete finance-charge inputs are not included.
Sources and limitations
Source for program context: LenderCity mortgage guide. Numbers are illustrative assumptions created for this example, not a lender quote. See the wholesale–retail spread methodology. LenderCity, Inc. · Company NMLS 193390.
Explore your next step
Compare the whole offer with WholeRates · Explore the Exchange anonymously · Ask Lenny · Read our methodology