You've got the right idea, but the math in your spreadsheet appears to me to be quite wrong somehow.

Here's my math, let me know where we diverge:

1. First, I'm going to take the two rows you seem to be referring to - the 2.50% and the 2.63% rows.

2. Second, I'm going to make the minor assumption that 2.63% is actually 2.625% and your spreadsheet is just rounding.

3. Looking at the credit/fee column, I calculate the difference between the two rows as $1268.40 - -$1612.80 = $1268.40 + $1612.80 = $2,881.20. In other words, you'll have to cough up $2,881.20 more at closing to get the 2.50% rate compared to the amount you'd have to pay at the 2.625% rate.

4. Looking at the monthly payment column, I calculate the difference between the two rows as $1,686.94 - $1,659.51 = $27.43. In other words, if you go with the 2.50% rate, you'll pay $27.43 less per month than with the 2.625% rate.

5. Dividing the result in step 3 by the result in step 4, I calculate $2,881.20 / $27.43 = 105.04. In other words, it will take about 105 months of paying a $27.43 lower payment for you to get back the $2881.20 more that you paid at closing.

6. Dividing the result in step 5 by 12, I get 105.04 / 12 = 8.75. In other words, it will take about 8.75 years of paying a $27.43 lower payment for you to get back the $2881.20 more that you paid at closing.

I don't know how you get 3.85 years, but I'm pretty sure your calculation isn't right. Maybe compare your formula to my logic above and see where it differs?

(I've done this pretty carefully, but it's also possible that I messed up the math somewhere. I did get honors in my MBA program but I still missed answers occasionally, and I'm rusty.)

...

The reason I get 8.75 years now vs. the 5.3 years earlier has to do with two things: First, I was using your originally rounded figure of $2800 instead of the actual figure of $2881.20. Second, I was just multiplying the rate difference by the initial mortgage principal, which overstates the interest savings because after the first month, your interest rate is being applied to a smaller balance. The 8.75 figure is a better one because it is based on the actual figures and takes into account the mortgage principal paydown over time because it's based on monthly payments.