The point at which the monthly savings created by a mortgage refinance offsets the cost of refinancing. It can also refer to the point at which the savings generated by paying discount points covers the cost of those points.
For example, if it costs $2,000 to refinance a mortgage, and refinancing saves $50 a month in interest charges, the breakeven point is $2,000 / $50, or 40 months.
Here’s a second situation: For a $100,000 mortgage, one discount point equals $1,000. If paying $1,000 lowers the mortgage payment by $37.50, it would take 27 months to make up the cost of that point. If the mortgage won’t be paid off or refinanced in less than 27 months, it makes sense to pay the extra point.