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Breakeven Equation:
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The refinance breakeven equation calculates how many months it will take to recover the costs of refinancing through monthly savings. It helps determine if refinancing is financially beneficial in the long term.
The calculator uses the breakeven equation:
Where:
Explanation: The equation divides the total upfront costs by the monthly savings to determine how many months it will take to break even on the refinance investment.
Details: Calculating the breakeven point is crucial for making informed decisions about refinancing. It helps determine if you'll stay in your home long enough to benefit from the refinance and whether the savings outweigh the costs.
Tips: Enter total refinancing costs in dollars and monthly savings in dollars per month. Both values must be positive numbers for accurate calculation.
Q1: What costs should be included in total refinancing costs?
A: Include all closing costs, application fees, appraisal fees, title insurance, and any other expenses associated with the refinance.
Q2: How do I calculate monthly savings from refinancing?
A: Subtract your new monthly mortgage payment from your current monthly payment. Don't forget to account for changes in insurance or taxes if they're included in your escrow.
Q3: What is considered a good breakeven period?
A: Typically, a breakeven period of less than 24-36 months is considered favorable, but this depends on your individual circumstances and how long you plan to stay in the home.
Q4: Does this calculation account for the time value of money?
A: No, this is a simple breakeven calculation. For a more precise analysis, consider using a discounted cash flow method that accounts for the time value of money.
Q5: Should I refinance if I plan to move before the breakeven point?
A: Generally, no. If you plan to move before reaching the breakeven point, you won't recoup the refinancing costs through monthly savings.