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Break Even Formula:
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The break even calculation determines how many months it will take to recover the costs of loan refinancing or transfer through monthly savings. It helps evaluate whether a financial decision is worthwhile in the long run.
The calculator uses the break even formula:
Where:
Explanation: This simple division shows how many months of savings are needed to offset the upfront costs of a financial decision.
Details: Break even analysis is crucial for making informed financial decisions about loan refinancing, debt consolidation, or any financial product transfer. It helps determine if the long-term savings justify the upfront costs.
Tips: Enter all costs associated with the financial change (fees, penalties, etc.) and your estimated monthly savings. Both values must be positive numbers, with monthly savings greater than zero.
Q1: What costs should be included in the calculation?
A: Include all upfront fees, closing costs, prepayment penalties, and any other expenses associated with the refinance or transfer.
Q2: How do I calculate monthly savings?
A: Subtract your new monthly payment from your current monthly payment. Include any changes in insurance or other associated costs.
Q3: What is a good break even period?
A: Generally, a break even period of less than 24 months is considered favorable, but this depends on your individual circumstances and how long you plan to keep the loan.
Q4: Should I proceed if the break even period is long?
A: Consider your future plans. If you might move or refinance again before reaching break even, the costs may not be worth it.
Q5: Does this calculation account for time value of money?
A: This is a simple calculation that doesn't account for the time value of money. For more precise analysis, consider using NPV or IRR calculations.