1. What is the Break-Even Calculation?

The break-even calculation determines how many months it will take for the savings from refinancing to equal the closing costs. This helps homeowners decide if refinancing makes financial sense based on how long they plan to stay in the home.

2. How Does the Calculator Work?

The calculator uses the break-even formula:

Where:

• \( Closing\ Costs \) — Total fees for refinancing (USD)
• \( Old\ PMT \) — Original monthly mortgage payment (USD)
• \( New\ PMT \) — New monthly mortgage payment after refinancing (USD)

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

3. Importance of Break-Even Analysis

Details: Understanding your break-even point helps determine if refinancing is worthwhile based on your expected time in the home. A shorter break-even period makes refinancing more attractive.

4. Using the Calculator

Tips: Enter all costs in USD. Ensure your new payment is less than your old payment (otherwise refinancing doesn't make sense). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as closing costs?
A: Include all fees - loan origination, appraisal, title insurance, points, and other lender/third-party charges.

Q2: What's a good break-even period?
A: Typically, less than 24-36 months is considered good, but depends on individual circumstances.

Q3: Should I include tax/insurance changes?
A: No, this calculation should only include principal and interest payment differences.

Q4: What if I plan to move before break-even?
A: Refinancing may not be financially beneficial in this case.

Q5: Does this account for interest savings?
A: Indirectly - the payment difference reflects both rate and term changes.