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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 refinancing your mortgage through monthly savings. This helps you decide if refinancing makes financial sense for your situation.
The calculator uses the break even formula:
Where:
Explanation: This simple division tells you how many months of savings it will take to offset the upfront costs of refinancing.
Details: Understanding your break even point is crucial when considering mortgage refinancing. It helps you determine if you'll stay in your home long enough to benefit from refinancing and whether the savings justify the upfront costs.
Tips: Enter all refinancing costs (typically including application fees, appraisal fees, title search, and other closing costs) and your estimated monthly savings from the new mortgage. All values must be positive numbers.
Q1: What costs should be included in the refinancing costs?
A: Include all upfront fees such as application fees, appraisal fees, title search, attorney fees, and any other closing costs associated with the refinance.
Q2: How do I calculate my monthly savings?
A: Subtract your new monthly mortgage payment from your current monthly payment. Don't forget to account for changes in insurance or taxes if they're included in your escrow.
Q3: What is a good break even period?
A: Typically, a break even period of less than 24 months is considered good, but this depends on your individual circumstances and how long you plan to stay in the home.
Q4: Does this calculation account for the time value of money?
A: No, this is a simple break even calculation. For a more comprehensive analysis, you might want to consider the time value of money and opportunity costs.
Q5: Should I refinance if I plan to move before the break even point?
A: Generally, no. If you plan to move before reaching the break even point, you won't recoup your refinancing costs through monthly savings.