Break Even Calculator for Refinance

Refinancing your mortgage can save you money, but it's important to understand when you'll start seeing those savings. The break even point is the time when the cost savings from refinancing equal the total costs you've incurred. This calculator helps you determine that critical point.

What is a break even point for refinancing?

The break even point for refinancing is the time period after which the savings from your new mortgage terms outweigh the costs of refinancing. These costs typically include closing costs, points, and any fees associated with the refinancing process.

Understanding your break even point helps you determine whether refinancing is financially beneficial in the long run. If your break even point is within a reasonable timeframe (usually 3-7 years), refinancing may be worth it. If it's much longer, you might want to wait or consider other financial options.

Key Consideration

Your break even point is influenced by interest rates, closing costs, and the length of your mortgage term. Lower interest rates and lower closing costs will generally result in a shorter break even period.

How to calculate the break even point

Calculating your break even point involves comparing the costs of refinancing with the savings you'll realize over time. Here's the basic formula:

Break Even Formula

Break Even Point (months) = (Total Refinancing Costs) / (Monthly Savings)

Where Monthly Savings = (Original Monthly Payment - New Monthly Payment)

To use this formula, you'll need to know:

The total costs of refinancing (closing costs, points, etc.)
Your original monthly mortgage payment
Your new monthly mortgage payment after refinancing

The result will tell you how many months it will take for the savings from your new mortgage to cover the costs of refinancing.

Key factors to consider

Several factors can affect your break even point for refinancing:

Factor	Impact
Interest Rate Difference	Larger differences between your old and new interest rates will result in greater monthly savings and a shorter break even point.
Closing Costs	Higher closing costs will increase your total refinancing costs, lengthening your break even period.
Loan Term	Shorter loan terms generally result in higher monthly payments, which can lengthen your break even period.
Home Value Appreciation	If your home value increases, you may have more equity to use for refinancing, potentially shortening your break even period.

Consider these factors when evaluating whether refinancing is right for you. Our calculator takes these into account to provide an accurate break even estimate.

Worked example

Let's look at an example to illustrate how the break even calculator works:

Example Scenario

Original Mortgage: 30-year fixed, 4.5% interest, $300,000 loan

Original Monthly Payment: $1,772.46

New Mortgage: 15-year fixed, 3.5% interest, $300,000 loan

New Monthly Payment: $2,200.54

Closing Costs: $5,000

Points Paid: 1.5% of loan amount = $4,500

Total Refinancing Costs: $5,000 + $4,500 = $9,500

Monthly Savings: $2,200.54 - $1,772.46 = $428.08

Break Even Point: $9,500 / $428.08 ≈ 22.2 months

In this example, the break even point is about 22 months. This means you'll start saving money from your new mortgage after approximately 22 months. If you plan to stay in your home for less than 22 months, refinancing might not be the best financial decision.

Frequently Asked Questions

What is the typical break even point for refinancing?: The typical break even point for refinancing ranges from 3 to 7 years, depending on interest rates, closing costs, and other factors. Our calculator provides a precise estimate based on your specific situation.
How accurate is the break even calculator?: The break even calculator provides an estimate based on the information you provide. For precise results, it's important to input accurate data about your current mortgage, new mortgage terms, and refinancing costs.
Should I refinance if my break even point is longer than 5 years?: If your break even point is longer than 5 years, you may want to consider other financial options or wait for more favorable interest rates before refinancing. However, each situation is unique, so it's important to evaluate your personal financial goals.
Does the break even calculator account for property taxes and insurance?: No, the break even calculator focuses on mortgage payments and refinancing costs. Property taxes and insurance are not included in the calculation. You should consider these factors separately when evaluating the overall cost of refinancing.
Can I use this calculator for home equity loans or HELOCs?: This calculator is specifically designed for traditional mortgage refinancing. For home equity loans or HELOCs, you may need a different type of financial calculator that accounts for those specific loan structures.