Home
Back
Break-Even Formula:
| From: | To: |
The break-even calculation determines how many months it will take to recover the costs of refinancing a mortgage through monthly savings. This helps homeowners decide if refinancing to a lower interest rate is financially beneficial.
The calculator uses the break-even formula:
Where:
Explanation: This simple division calculates how many months of savings are needed to equal the upfront costs of refinancing.
Details: Break-even analysis is crucial for making informed decisions about mortgage refinancing. It helps determine if the long-term savings justify the upfront costs, especially if you plan to sell the home before reaching the break-even point.
Tips: Enter the total refinancing costs (including fees, points, and other expenses) and your estimated monthly savings from the lower interest rate. Both values must be positive numbers.
Q1: What costs should be included in refinancing costs?
A: Include all upfront fees such as application fees, appraisal fees, title search, attorney fees, and any points paid to lower the interest rate.
Q2: How do I calculate monthly savings?
A: Subtract your new monthly payment from your current monthly payment. Be sure to consider changes in loan term and any escrow payments.
Q3: What is a good break-even period?
A: Typically, a break-even period of less than 24-36 months is considered favorable, but this depends on how long you plan to stay in the home.
Q4: Does this calculation consider tax implications?
A: No, this is a simplified calculation. Consult a tax professional as mortgage interest deductions may affect your actual savings.
Q5: Should I refinance if I plan to move before the break-even point?
A: Generally no, as you won't recoup the refinancing costs. However, there might be other reasons to refinance, such as cash-out needs.