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Mortgage Refinance Breakeven Calculator

Results Summary

function calculateRefinance() { var balance = parseFloat(document.getElementById('mortgageBalance').value); var termYears = parseFloat(document.getElementById('remainingTerm').value); var oldRate = parseFloat(document.getElementById('currentRate').value) / 100 / 12; var newRate = parseFloat(document.getElementById('newRate').value) / 100 / 12; var costs = parseFloat(document.getElementById('refiClosingCosts').value); var termMonths = termYears * 12; var resultDiv = document.getElementById('refiResult'); var detailsDiv = document.getElementById('resultDetails'); if (isNaN(balance) || isNaN(termYears) || isNaN(oldRate) || isNaN(newRate) || isNaN(costs)) { resultDiv.style.display = 'block'; detailsDiv.innerHTML = 'Please fill in all fields with valid numbers.'; return; } // Amortization Formula: P = (r * PV) / (1 – (1 + r)^-n) var currentMonthly = (oldRate * balance) / (1 – Math.pow(1 + oldRate, -termMonths)); var newMonthly = (newRate * balance) / (1 – Math.pow(1 + newRate, -termMonths)); var monthlySavings = currentMonthly – newMonthly; resultDiv.style.display = 'block'; if (monthlySavings <= 0) { detailsDiv.innerHTML = 'Warning: The new interest rate does not lower your monthly payment for the remaining term. Refinancing may not be financially beneficial in this scenario.'; } else { var breakevenMonths = Math.ceil(costs / monthlySavings); var breakevenYears = (breakevenMonths / 12).toFixed(1); detailsDiv.innerHTML = 'Monthly Payment Reduction: $' + monthlySavings.toFixed(2) + " + 'Total Refinance Costs: $' + costs.toLocaleString() + " + 'Time to Breakeven: ' + breakevenMonths + ' months (' + breakevenYears + ' years)' + 'If you plan to stay in your home for more than ' + breakevenYears + ' years, refinancing could save you money in the long run.'; } }

Understanding Your Mortgage Refinance Breakeven Point

Deciding when to refinance your mortgage is more than just chasing a lower interest rate. The "breakeven point" is the most critical metric in this decision. It represents the moment when the monthly savings generated by a lower interest rate finally offset the upfront costs of securing the new loan.

How This Calculator Works

Our Mortgage Refinance Breakeven Calculator uses the standard amortization formula to compare your current debt obligation against a potential new loan. By calculating the difference in monthly principal and interest payments, we determine how much you "save" each month. We then divide your total closing costs by this monthly saving to find the number of months required to recoup your investment.

Key Components of the Calculation

  • Current Loan Balance: The actual amount you still owe on your home, not the original purchase price.
  • Closing Costs: These typically range from 2% to 5% of the loan amount and include appraisal fees, title insurance, and origination fees.
  • Interest Rate Spread: The difference between your current rate and the new market rate. Generally, a spread of 0.75% to 1% is considered the threshold for a "worthwhile" refinance.

A Real-World Example

Imagine you have a $300,000 loan balance at 6.5% interest. Your monthly principal and interest payment is approximately $1,896. If you refinance into a new loan at 5.5%, your new payment would be roughly $1,703.

In this scenario:

  • Monthly Savings: $193
  • Refinance Costs: $5,000
  • Breakeven Calculation: $5,000 / $193 = 25.9 months

If you plan to live in the house for at least 3 more years, this refinance is a mathematically sound decision. If you plan to sell the home in 18 months, you would lose money by refinancing.

When Should You Refinance?

SEO experts and financial advisors suggest looking at the "time-in-home" factor. If your breakeven point is 36 months, but you're planning a career move in two years, the upfront costs will outweigh the interest savings. Additionally, consider if you are resetting a 30-year clock. If you have 20 years left on your current mortgage and refinance into a new 30-year term, you may pay more in total interest over the life of the loan even if your monthly payment drops.

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