1. What is the Refinance Break Even Calculation?

The refinance break even calculation determines how many months it will take to recover the costs of refinancing through monthly savings. This helps homeowners decide if refinancing is financially beneficial.

2. How Does the Calculator Work?

The calculator uses the break even formula:

Where:

• \( C \) — Total refinancing costs (currency units)
• \( S \) — Monthly savings from refinancing (currency units per month)

Explanation: This simple division calculates how many months of savings are needed to equal the upfront refinancing costs.

3. Importance of Break Even Analysis

Details: Break even analysis is crucial for determining whether refinancing makes financial sense. If you plan to stay in your home longer than the break even period, refinancing is typically beneficial.

4. Using the Calculator

Tips: Enter all refinancing costs (application fees, appraisal fees, closing costs, etc.) and your estimated monthly savings from the lower interest rate. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What costs should be included in refinancing costs?
A: Include all upfront fees: 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 payment from your current monthly payment. Include both principal and interest portions.

Q3: Is a shorter break even period better?
A: Yes, a shorter break even period means you'll start realizing net savings sooner, making the refinance more advantageous.

Q4: Should I refinance if I plan to move before the break even point?
A: Typically no, as you won't recoup the refinancing costs before selling the property.

Q5: Are there other factors to consider beyond break even?
A: Yes, consider changes in loan term, equity building, and whether you're switching from adjustable to fixed-rate mortgages.