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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 homeowners decide if refinancing makes financial sense.
The calculator uses the break even formula:
Where:
Explanation: This simple calculation divides your total refinancing costs by your monthly savings to determine how many months it will take to break even on your investment.
Details: Break even analysis is crucial for making informed decisions about mortgage refinancing. It helps determine if you'll stay in your home long enough to benefit from refinancing and whether the upfront costs are justified by the long-term savings.
Tips: Enter your total refinancing costs in dollars and your estimated monthly savings in dollars per month. Be sure to include all closing costs and fees in your cost calculation, and use your actual monthly payment reduction for the savings value.
Q1: What costs should be included in the refinancing costs?
A: Include all closing costs, application fees, appraisal fees, title insurance, and any other expenses 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 24-36 months is considered good, but this depends on how long you plan to stay in the home.
Q4: Does this calculator account for tax implications?
A: No, this is a simple break even calculator. Consult a tax professional for advice on how refinancing might affect your taxes.
Q5: Should I refinance if I plan to move before the break even point?
A: Generally no, as you won't recoup your refinancing costs if you move before reaching the break even point.