1. What is the Break Even Calculation?

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

2. How Does the Calculator Work?

The calculator uses the break even formula:

Where:

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

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

3. Importance of Break Even Analysis

Details: Break even analysis is crucial for making informed decisions about mortgage refinancing. It helps determine if the long-term savings justify the short-term costs of refinancing.

4. Using the Calculator

Tips: Enter the total refinancing costs and estimated monthly savings. Both values must be positive numbers. The result shows how many months it will take to break even on your investment.

5. Frequently Asked Questions (FAQ)

Q1: What costs are included in refinancing?
A: Typical costs include application fees, appraisal fees, title search, attorney fees, and other closing costs associated with the new loan.

Q2: How do I calculate monthly savings?
A: Subtract your new monthly payment from your current monthly payment. Include any changes in insurance or taxes if applicable.

Q3: What is a good break even period?
A: Generally, a break even period of less than 24-36 months is considered favorable, but this depends on individual circumstances and how long you plan to stay in the home.

Q4: Does this calculation consider time value of money?
A: No, this is a simple break even calculation. For more precise analysis, consider discounted cash flow methods that account for the time value of money.

Q5: Should I refinance if I plan to move soon?
A: If you plan to move before reaching the break even point, refinancing may not be financially beneficial unless other factors outweigh the costs.