1. What is the Break Even Refinance Calculation?

The Break Even calculation determines how many months it will take for the savings from refinancing to equal the total costs associated with the refinance. This helps homeowners decide if refinancing makes financial sense for their situation.

2. How Does the Calculator Work?

The calculator uses the Break Even equation:

Where:

• \( BE \) — Break Even (months, unitless)
• \( TC \) — Total Costs ($)
• \( MS \) — Monthly Savings ($/month)

Explanation: The equation calculates the number of months required for the accumulated monthly savings to cover the total upfront costs of refinancing.

3. Importance of Break Even Calculation

Details: Calculating the break-even point is crucial for making informed refinancing decisions. It helps determine if you plan to stay in your home long enough to recoup the refinancing costs and start realizing net savings.

4. Using the Calculator

Tips: Enter total refinancing costs in dollars and estimated monthly savings in dollars per month. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What costs should be included in total refinancing costs?
A: Include all closing costs, origination fees, appraisal fees, title insurance, and any other fees associated with the refinance.

Q2: How do I calculate monthly savings?
A: Subtract your new monthly mortgage payment from your current monthly payment. Include changes in property taxes and insurance if applicable.

Q3: What is considered a good break-even point?
A: Typically, a break-even point of 24 months or less is considered favorable, but this depends on how long you plan to stay in the home.

Q4: Does this calculation consider the time value of money?
A: No, this is a simple break-even calculation that doesn't account for the time value of money or potential investment returns on the savings.

Q5: Should I refinance if I plan to move before the break-even point?
A: Generally no, as you won't recoup your refinancing costs before selling the property.