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Break Even Equation:
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The Refinance Break Even calculation determines how many months it will take to recover the costs of refinancing a mortgage through the monthly savings achieved. It helps homeowners decide if refinancing is financially beneficial.
The calculator uses the Break Even equation:
Where:
Explanation: The equation calculates the time required to offset the upfront refinancing costs with the monthly payment savings.
Details: Calculating the break-even point is essential for making informed decisions about mortgage refinancing. It helps determine if the long-term savings justify the initial costs and how long you need to stay in the home to benefit.
Tips: Enter total refinancing costs in dollars and monthly savings in dollars per month. Both values must be positive numbers.
Q1: What costs are included in total refinancing costs?
A: Total costs typically include application fees, appraisal fees, title insurance, closing costs, and any other fees associated with the refinance process.
Q2: How is monthly savings calculated?
A: Monthly savings is the difference between your current monthly mortgage payment and the new monthly payment after refinancing.
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 tax implications?
A: No, this is a basic calculation that doesn't account for potential tax benefits or changes. Consult a financial advisor for a comprehensive analysis.
Q5: Should I refinance if I plan to move before the break-even point?
A: Typically, no. If you move before reaching the break-even point, you won't recover the refinancing costs through monthly savings.