Refinance Break Even Calculator Nerdwallet

Refinancing your mortgage can save you money, but it's important to understand when the savings will outweigh the costs. This calculator helps you determine the break-even point for refinancing by comparing the costs of refinancing with the savings from a lower interest rate.

How the Refinance Break Even Calculator Works

The refinance break even calculator determines how long it will take for the savings from refinancing to cover the costs of refinancing. The formula used is:

Break Even Months = (Refinance Costs) / (Monthly Savings)

Where:

Refinance Costs - The total fees and closing costs associated with refinancing your mortgage.
Monthly Savings - The difference between your current monthly payment and the new monthly payment after refinancing.

The calculator uses these inputs to determine how many months it will take for the savings to cover the costs of refinancing. This helps you decide whether refinancing is worth it based on your financial situation.

How to Use This Calculator

Enter the total costs of refinancing (including fees and closing costs).
Enter your current monthly mortgage payment.
Enter your new monthly mortgage payment after refinancing.
Click "Calculate" to see the break-even point in months.
Review the results and decide whether refinancing is worth it for your situation.

Remember that this calculator provides an estimate. Actual results may vary based on your specific financial situation and the terms of your new mortgage.

Example Calculation

Let's say you're considering refinancing your mortgage. Here are the details:

Refinance costs: $5,000
Current monthly payment: $1,500
New monthly payment: $1,200

The monthly savings would be $1,500 - $1,200 = $300. The break-even point would be $5,000 / $300 = 16.67 months. This means it would take about 17 months for the savings from refinancing to cover the costs of refinancing.

Based on this calculation, you might decide that refinancing is worth it if you plan to stay in your home for at least 17 months. If you plan to sell or move sooner, refinancing might not be the best option.

Frequently Asked Questions

What is the break-even point for refinancing?

The break-even point is the time it takes for the savings from refinancing to cover the costs of refinancing. This calculator helps you determine that point based on your specific financial situation.

How accurate is this calculator?

This calculator provides an estimate based on the inputs you provide. Actual results may vary based on your specific financial situation and the terms of your new mortgage.

What factors should I consider besides the break-even point?

Besides the break-even point, consider your long-term plans for the property, the interest rate difference, and any potential tax benefits or penalties associated with refinancing.

Can I use this calculator for a home equity loan instead of refinancing?

This calculator is specifically designed for refinancing. For a home equity loan, you would need to consider the different costs and savings associated with that type of loan.