Refinance Break-Even Calculator

Break-Even Formula:

\[ \text{Break-Even Months} = \frac{\text{Closing Costs}}{\text{Old PMT} - \text{New PMT}} \]

Break-Even Months:

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1. What is the Refinance Break-Even Calculation?

The refinance break-even calculation determines how many months it will take to recover the closing costs of refinancing through the monthly payment savings. This helps homeowners decide if refinancing makes financial sense.

2. How Does the Calculator Work?

The calculator uses the break-even formula:

\[ \text{Break-Even Months} = \frac{\text{Closing Costs}}{\text{Old Monthly Payment} - \text{New Monthly Payment}} \]

Where:

Closing Costs — Total fees paid to refinance (USD)
Old Monthly Payment — Original mortgage payment amount (USD)
New Monthly Payment — Refinanced mortgage payment amount (USD)

Explanation: The equation calculates how many months of payment 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 the home longer than the break-even period, refinancing may be beneficial.

4. Using the Calculator

Tips: Enter all costs in USD. Ensure the new payment is less than the old payment for the calculation to be meaningful. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What costs should be included in closing costs?
A: Include all fees: application fees, appraisal fees, title insurance, attorney fees, points, and any other refinancing charges.

Q2: What's considered a good break-even period?
A: Typically, less than 24 months is considered good, but this depends on how long you plan to stay in the home.

Q3: Does this account for interest rate differences?
A: Indirectly, as the interest rate affects the new monthly payment amount.

Q4: Should I consider tax implications?
A: Yes, if mortgage interest is tax-deductible for you, this may affect the true savings.

Q5: What if my new loan term is different?
A: The calculator focuses on monthly cash flow. A longer term may show monthly savings but cost more in total interest.