Bankrate Refinance Break Even Calculator

Refinancing your mortgage can save you money, but it's important to know when it makes financial sense. Our Bankrate Refinance Break Even Calculator helps you determine the optimal time to refinance your mortgage by calculating the point at which the savings from the new loan outweigh the costs of refinancing.

What is Refinance Break Even?

The refinance break even point is the number of months after refinancing when the cumulative savings from the lower interest rate equal the total refinancing costs. This calculation helps homeowners decide whether refinancing is worth the effort and fees.

Key factors that affect your refinance break even point include:

Current mortgage interest rate
New mortgage interest rate
Refinancing fees (closing costs)
Length of the mortgage term
Current loan balance

Understanding your refinance break even point helps you make an informed decision about whether to refinance now or wait for better rates in the future. It's particularly useful when interest rates are expected to rise or when you're considering refinancing due to life changes like a job change or home improvement projects.

How to Use This Calculator

Using our Bankrate Refinance Break Even Calculator is simple. Follow these steps to get your personalized refinance break even point:

Enter your current mortgage interest rate
Enter the new mortgage interest rate you're considering
Input your current loan balance
Enter the estimated refinancing fees (closing costs)
Specify the length of your mortgage term in years
Click "Calculate" to see your refinance break even point

The calculator will display the number of months after refinancing when your savings will equal the costs of refinancing. This information helps you determine whether refinancing is financially beneficial at the current time.

Formula Used

The refinance break even point is calculated using the following formula:

Refinance Break Even (months) = (Refinancing Fees) / (Monthly Savings)

Where Monthly Savings = (Current Interest Rate - New Interest Rate) × (Loan Balance) / 1200

This formula determines how long it will take for the monthly savings from the lower interest rate to cover the total refinancing fees. The result is expressed in months, providing a clear timeline for when refinancing becomes financially beneficial.

Example Calculation

Let's look at an example to understand how the refinance break even calculator works. Suppose you have a $200,000 mortgage with a current interest rate of 6%, and you're considering refinancing to a new rate of 4.5%. The estimated refinancing fees are $3,000.

Monthly Savings = (6% - 4.5%) × $200,000 / 1200 = $100/month

Refinance Break Even = $3,000 / $100 = 30 months

In this example, refinancing would break even after 30 months. This means that after paying an additional $100 per month for 2.5 years, the savings from the lower interest rate would cover the $3,000 in refinancing fees.

This example illustrates how the calculator helps you make an informed decision about refinancing. By comparing different scenarios, you can determine whether refinancing is the right choice for your financial situation.

Frequently Asked Questions

What is the best time to refinance my mortgage?

The best time to refinance depends on your financial situation and the current interest rate environment. Generally, it's wise to refinance when you can secure a lower interest rate than your current mortgage, and when the refinance break even point is within a reasonable timeframe for your financial goals.

How do refinancing fees affect the break even point?

Refinancing fees are a significant factor in determining the break even point. Higher fees will increase the time it takes to recoup the costs of refinancing. Our calculator takes these fees into account to provide an accurate break even calculation.

Can I use this calculator for a home equity loan or HELOC?

Yes, you can use this calculator for home equity loans or HELOCs by adjusting the input values to reflect the terms of your specific loan. The principles of calculating the break even point remain the same.

What if I want to refinance to a longer term?

Refinancing to a longer term can sometimes be beneficial if you expect interest rates to rise. Our calculator can help you evaluate whether the longer term is financially advantageous by comparing the break even points of different loan terms.

How often should I check my refinance break even point?

It's a good idea to check your refinance break even point whenever there are significant changes in your financial situation or when interest rates fluctuate. Regularly reviewing this information can help you make timely decisions about refinancing.