Mortgage Loan Break Even Calculator

The mortgage loan break even calculator helps determine when your mortgage loan will break even, considering both the principal and interest payments versus the cost of refinancing. Understanding this point is crucial for making informed financial decisions about your mortgage.

What is Mortgage Loan Break Even?

The mortgage loan break even point is the time at which the total cost of refinancing your mortgage equals the total cost of keeping your current mortgage. This calculation helps you determine whether refinancing is financially beneficial at a specific point in time.

Key factors that affect the break even point include:

Current mortgage interest rate
Potential refinancing interest rate
Current loan balance
Refinancing fees
Time until break even

Refinancing may not always be the best financial decision, even if the break even point is reached. Other factors like closing costs, tax implications, and personal financial goals should also be considered.

How to Calculate Mortgage Break Even

The mortgage break even calculation involves comparing the total cost of keeping your current mortgage versus refinancing. The formula for calculating the break even point is:

Break Even Point (in months) = (Refinancing Fees) / (Monthly Savings from Refinancing)

Where:

Refinancing Fees = Total closing costs of refinancing
Monthly Savings from Refinancing = Difference in monthly payments between current and refinanced mortgage

The calculation assumes that you will pay off the mortgage at the break even point. If you plan to keep the mortgage longer, the break even point will be different.

Worked Example

Let's consider a scenario where you have a $200,000 mortgage with a 5% interest rate. You're considering refinancing to a 4% interest rate with $3,000 in closing costs.

Current monthly payment at 5%: $1,143.23

Refinanced monthly payment at 4%: $996.54

Monthly savings from refinancing: $146.69

Break even point: $3,000 / $146.69 ≈ 20.45 months

This means you would need to keep the refinanced mortgage for about 20 months to break even on the closing costs.

Scenario	Break Even Point
Low closing costs ($2,000)	13.66 months
High closing costs ($4,000)	27.32 months

Frequently Asked Questions

What is the mortgage break even point?: The mortgage break even point is the time when the total cost of refinancing equals the total cost of keeping your current mortgage.
How do I calculate mortgage break even?: Divide the total refinancing fees by the monthly savings from refinancing to determine the break even point in months.
Is refinancing always a good idea?: No, refinancing should be evaluated based on your financial situation, including closing costs, tax implications, and personal financial goals.
What factors affect the break even point?: Factors include current interest rate, refinanced interest rate, loan balance, refinancing fees, and your planned mortgage term.