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Mortgage Refinance Breakeven Point Equation:
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The Mortgage Refinance Breakeven Point refers to the point in time when the savings generated from refinancing offset the costs associated with obtaining the new mortgage. It helps determine whether refinancing makes financial sense.
The calculator uses the Mortgage Refinance Breakeven Point equation:
Where:
Explanation: This calculation determines how many months it will take for the monthly savings to cover the upfront costs of refinancing.
Details: Calculating the breakeven point is crucial for making informed decisions about mortgage refinancing. It helps determine if the long-term savings justify the short-term costs and whether you plan to stay in the home long enough to benefit from refinancing.
Tips: Enter total loan costs in dollars, monthly savings in dollars. Both values must be positive numbers. The result shows the number of months required to break even on your refinancing costs.
Q1: What costs are included in Total Loan Costs?
A: Total loan costs typically include application fees, appraisal fees, title search and insurance, origination fees, and other closing costs associated with the new mortgage.
Q2: How do I calculate Monthly Savings?
A: Monthly savings is the difference between your current monthly mortgage payment and your new monthly payment after refinancing.
Q3: What is considered a good breakeven point?
A: Generally, a breakeven point of 24 months or less 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: This basic calculation does not account for tax implications. Consult with a tax professional as mortgage interest deductions may affect your overall savings.
Q5: Should I refinance if I plan to move before the breakeven point?
A: Typically, no. If you plan to move before reaching the breakeven point, you may not recover the refinancing costs through monthly savings.