Mortgage Refinance Calculator

Break-Even Formula:

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

Break-Even Point:

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1. What is the Mortgage Refinance Break-Even Point?

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

2. How Does the Calculator Work?

The calculator uses the break-even formula:

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

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 Calculation

Details: Calculating the break-even point helps determine if refinancing is worthwhile based on how long you plan to stay in the home. If you plan to move before reaching the break-even point, refinancing may not be beneficial.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good break-even point?
A: Typically, a break-even point under 24 months is considered good, but this depends on how long you plan to stay in the home.

Q2: What costs should be included in closing costs?
A: Include all fees: application fees, appraisal fees, title insurance, attorney fees, points, and other lender charges.

Q3: Does this account for changes in loan term?
A: No, this simple calculation only compares monthly payments. A full analysis should consider total interest over the loan life.

Q4: Should I refinance if I'm close to paying off my mortgage?
A: Usually not, unless you're switching to a significantly shorter term. The savings may not justify the costs late in the loan.

Q5: How does interest rate affect the break-even point?
A: Lower rates reduce the new payment, increasing monthly savings and shortening the break-even period (all else being equal).