1. What is Refinance Break-Even Point?

The refinance break-even point is the number of months it takes for the monthly savings from your new loan to equal the closing costs of refinancing. It helps determine if refinancing makes financial sense for your situation.

2. How Does the Calculator Work?

The calculator uses the break-even formula:

Where:

• \( Closing\ Costs \) — Total fees paid to refinance (USD)
• \( Monthly\ Savings \) — Reduction in monthly payment (USD)

Explanation: The equation calculates how many months of savings are needed to recover the upfront refinancing costs.

3. Importance of Break-Even Calculation

Details: Knowing your break-even point helps determine if you'll stay in the home long enough to benefit from refinancing. Generally, refinancing only makes sense if you plan to stay beyond the break-even point.

4. Using the Calculator

Tips: Enter total closing costs (all fees associated with refinancing) and your expected monthly payment reduction. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good break-even point?
A: Typically, a break-even under 24 months is considered favorable, but this depends on individual circumstances.

Q2: Should I include prepaids in closing costs?
A: No, only include actual refinancing costs (loan fees, appraisal, title insurance, etc.), not prepaid items like taxes/insurance.

Q3: How accurate is this calculation?
A: It provides a basic estimate but doesn't account for opportunity costs, tax implications, or changing interest rates.

Q4: Does this work for cash-out refinances?
A: The calculation is less meaningful for cash-out refinances since the purpose is different than rate/term refinancing.

Q5: Should I refinance if I'm moving soon?
A: Only if your break-even point is shorter than your planned time in the home.