Calculate Break Even Point for Refinance

Refinancing your mortgage can save you money, but it's important to know when the savings will outweigh the costs. The break even point for refinancing is the point at which the savings from refinancing equal the costs of refinancing. This calculator helps you determine that point.

What is the break even point for refinancing?

The break even point for refinancing is the number of months or years after which the savings from refinancing your mortgage will equal the costs of refinancing. At this point, you've effectively "broken even" and are starting to see the financial benefits of refinancing.

For example, if you refinance your mortgage and save $500 per month, but it costs you $3,000 in closing costs, the break even point would be when the $500 savings per month have covered the $3,000 closing costs. This would take 6 months (3,000 / 500 = 6).

How to calculate the break even point for refinancing

To calculate the break even point for refinancing, you need to know:

The total cost of refinancing (closing costs, fees, etc.)
The monthly savings from refinancing

The formula for calculating the break even point in months is:

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

For example, if your total refinancing cost is $3,000 and your monthly savings are $500, the break even point would be 6 months.

Key factors to consider

When calculating the break even point for refinancing, consider these factors:

Closing costs: These are the fees you pay to refinance, such as appraisal fees, title insurance, and origination fees.
Interest rate savings: The difference between your current interest rate and the new interest rate.
Loan term: The length of time you'll be paying off the mortgage.
Property value: The value of your home, which affects the loan amount and potential savings.
Credit score: A higher credit score may qualify you for a lower interest rate, which can lower your refinancing costs.

Example calculation

Let's say you're refinancing a $200,000 mortgage with a 5% interest rate. Your current mortgage has a 6% interest rate, and you're saving $100 per month on your mortgage payment. Your total refinancing cost is $3,500.

Using the formula:

Break Even Point (months) = $3,500 / $100 = 35 months

This means it will take 35 months (about 2.9 years) for the savings from refinancing to cover the costs of refinancing.

FAQ

What is the average break even point for refinancing?

The average break even point for refinancing is between 2 and 5 years, depending on the total refinancing cost and monthly savings.

Can I refinance if the break even point is longer than 5 years?

Yes, you can still refinance if the break even point is longer than 5 years. The key is to weigh the long-term savings against the short-term costs.

How do I know if refinancing is worth it?

Refinancing is worth it if the savings from refinancing outweigh the costs of refinancing. Use this calculator to determine the break even point and make an informed decision.