1. What is the Break Even Calculation?

The Break Even calculation determines how many months it will take to recover the costs of refinancing through monthly savings. It helps assess whether refinancing is financially beneficial in the long term.

2. How Does the Calculator Work?

The calculator uses the Break Even formula:

Where:

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

Explanation: This simple division gives the number of months required to offset the initial refinancing costs with the monthly savings achieved.

3. Importance of Break Even Analysis

Details: Break Even analysis is crucial for making informed financial decisions about refinancing. It helps determine if the long-term savings justify the upfront costs, ensuring a sound investment.

4. Using the Calculator

Tips: Enter the total costs associated with refinancing in dollars, and the expected monthly savings in dollars per month. Both values must be valid (total costs ≥ 0, monthly savings > 0).

5. Frequently Asked Questions (FAQ)

Q1: What counts as total costs in refinancing?
A: Total costs typically include application fees, appraisal fees, title search, insurance, and any other closing costs associated with the refinance.

Q2: How is monthly savings calculated?
A: Monthly savings is the difference between your old monthly payment and your new monthly payment after refinancing.

Q3: What is a good break even period?
A: Generally, a break even period of less than 24 months is considered favorable, but this can vary based on individual circumstances and plans to stay in the home.

Q4: Does this calculation consider interest rates?
A: Indirectly, yes. The monthly savings already reflect the change in interest rates, as they affect the monthly payment amount.

Q5: Are there other factors to consider beyond break even?
A: Yes, consider how long you plan to stay in the home, changes in loan term, and overall financial goals beyond just the break even point.