The Break-Even Index
Every financial article ends the same way: “calculate your break-even point.” Almost none of them calculates it. So we did — for eight of the most common borrowing decisions in America, using the same engines that power our 38 calculators. These are original figures. They are free to cite, and every one of them is reproducible in a tool linked from its row.
The Index
Eight decisions, eight break-evens. Note the units: a break-even is not always a date.
| The decision | Break-even | What it means | The setup |
|---|---|---|---|
| Balance transfer fee | 44 days | The 3% fee equals 44 days of the old card’s interest. Past day 44, the transfer is winning. | $6,000 at 24.99% APR, 3% fee ($180) |
| Mortgage refinance | 1 yr 11 mo | Closing costs recovered — but see below. This one lies. | $280,000 at 7.25%, 25 yr left → 6.25% / 30 yr, $6,000 costs |
| Mortgage points | 5 yr 1 mo | Sell or refinance before month 61 and the points were a donation. | $350,000 at 6.75%, 1 point ($3,500) buys 0.25% |
| Points vs a bigger down payment | 6 yr 9 mo | Leave earlier and the down payment wins — even though its monthly payment is higher. | $400,000 home, $40,000 down, $20,000 spare cash |
| HELOC vs personal loan | $3,380 | A break-even in dollars. Borrow less than this and the higher-rate loan is cheaper. | 5-year term, HELOC 8% + $800 costs, loan 13.5% + 5% fee |
| 0% financing vs cash rebate | 2.3% APR | A break-even in rate. The rebate only wins if you can borrow below 2.3%. | $35,000 car, $2,000 rebate, 60 months |
| Prepay debt vs invest | 7.0% return | The crossover is simply your debt’s APR. Paying off 7% debt is a guaranteed 7% return. | $20,000 at 7.0% APR, $300/month spare |
| Velocity banking | 11.20% HELOC | Above this the strategy loses. Below it, it wins by $13 a month — and HELOCs are variable. | $300,000 at 6.5%, $1,104/month surplus, $15,000 chunk |
Read the second column again. Four of these break-evens are deadlines, one is a price, and three are rates. That is the first thing the index reveals: “when do I break even?” is often the wrong question. For a HELOC the question is how much am I borrowing; for a car rebate it is what rate can I get. Ask a deadline question about a price problem and you will get a confident, useless answer.
The break-even that lies
The refinance row deserves its own section, because it is the most dangerous number on this page — and it is the one the entire mortgage industry quotes.
Take a $280,000 balance at 7.25% with 25 years left, and refinance it to 6.25% over a fresh 30 years with $6,000 of costs rolled in. The payment falls from $2,023.86 to $1,760.95 — a saving of $262.91 a month. Divide the costs by the saving and you get the number every lender will show you: break-even in 1 yr 11 mo. Stay two years and you are ahead.
Except you are not. Over the life of the loan, that refinance costs $26,785 more than the mortgage it replaced — despite a rate a full percentage point lower.
The reason is that the standard break-even formula measures the wrong thing. It compares closing costs against monthly cash flow and quietly ignores the fact that the clock was reset: 25 years of remaining payments became 30. You bought a lower rate and paid for it with five extra years of interest, and the break-even calculation never looked. This is the same lesson our 15 vs 30 year study found from the other direction: on a $350,000 mortgage, the 15-year saves $283,900 in interest, but only $43,492 of that — 15% — comes from its lower rate. The other $240,409, or 85%, is purely the shorter term.
A break-even is only as good as the thing it is measuring. Ours measures lifetime cost, which is why our own tool prints the verdict the industry’s number hides.
Why the rate is a decoy
We did not set out to prove this. Each study went looking for something else, and each one independently landed on the same place: the headline interest rate is rarely the variable that decides a borrowing decision. Six examples, all from the table above.
| Decision | What everyone watches | What actually decides it |
|---|---|---|
| 15 vs 30 year mortgage | The 15-year’s lower rate | The term. 85% of the saving ($240,409) comes from paying faster — free on a 30-year. |
| Refinancing | “I dropped my rate a full point” | The term reset. Costs $26,785 more anyway. |
| Mortgage points | The interest rate offered | The point pricing. Sweeping the rate 5.5%–8% moves the break-even 7 months; sweeping what a point buys moves it 151. |
| Balance transfer | The transfer fee (0% vs 3%) | The length of the 0% window. The fee costs days; the runway is worth months. |
| 0% financing vs rebate | “Zero percent has to be a gimmick” | The term — in reverse. A longer loan makes 0% more valuable, the opposite of every other rule in debt. |
| Velocity banking | The HELOC rate against the mortgage rate | The float. It is the entire benefit — remove the paycheck-parking and the strategy becomes the worst plan on the board. |
The balance-transfer row is the cleanest illustration, because the arithmetic collapses to something you can do in your head. A transfer fee is a percentage; interest is a rate per year. Divide one by the other and the balance cancels out entirely:
Break-even days = fee % × 365 ÷ APR
A 3% fee against a 24.99% card is 44 days of interest — whether you are transferring $2,000 or $20,000. The balance does not appear in the formula. Which means the fee, the thing every “best balance transfer card” listicle ranks on, is a rounding error compared to the length of the 0% window. On $6,000 at $250 a month, a no-fee card with a 12-month window costs $561, while a 3%-fee card with a 21-month window costs $234. The “free” card is more than twice as expensive. Buy the runway, not the discount.
One number that is not a break-even
It belongs here anyway, because it is the same trick in its ugliest form. A payday lender does not quote a rate; it quotes a fee. $15 per $100, for 14 days. That sounds like a service charge. It is an interest rate, and it is 391% APR. Borrow $500 and roll it over four times — the industry’s normal case, not its worst one — and you will pay $375 in fees over 70 days and still owe the original $500.
Every other row on this page is a decision with two defensible answers. This one is not. We publish the arithmetic because the fee is designed not to look like a rate.
How to cite this page
These figures are free to use, including commercially, with attribution and a link. No permission needed, no form to fill in.
Journalists and researchers: we will run any scenario in this index against your numbers and send you the working, usually the same day. Ask at [email protected]. If you want a figure we have not computed, ask for that too — we would rather compute it than have it guessed.
Methodology, and what we do not model
Every figure here comes from standard monthly amortization — the same formulas lenders use — run in the browser by the calculator linked in each row. Break-evens are located either in closed form (the balance-transfer identity above) or by simulating month by month and finding the first month one path overtakes the other. The full methodology is published, and every calculator is driven through an automated edge-case suite before release.
What we deliberately leave out, because including it would make these numbers look more precise than they are:
- Tax. Mortgage points and mortgage interest can be deductible if you itemise; most filers do not. Including a tax benefit would shorten several break-evens by an amount that varies from “nothing” to “your marginal rate.”
- Rate changes. HELOCs are variable. We price them at a constant rate, which flatters the HELOC — run it two points higher and see what survives.
- Market returns. The prepay-vs-invest crossover assumes a deterministic return. Real markets are not deterministic, and a guaranteed 7% from debt payoff is not the same asset as a hoped-for 7% from equities, even when the arithmetic ties.
- Your life. Every deadline in this table assumes you keep the loan. Moving, refinancing, or a job in another city resets the clock, and most people are wrong about how long they will stay.
One more caveat, and it is the important one: a break-even is a fact about money, not an instruction. The index can tell you that a HELOC is cheaper than a personal loan above $3,380. It cannot tell you that the HELOC puts your house on the table and the personal loan does not. Where the arithmetic and the risk point in different directions, the arithmetic is the weaker argument.