Formula to Calculate Interest

Include application fees, appraisal, title insurance, and origination points.

Calculation Summary

function calculateRefinance() { var currentP = parseFloat(document.getElementById('currentPayment').value); var newP = parseFloat(document.getElementById('newPayment').value); var costs = parseFloat(document.getElementById('closingCosts').value); var resultsDiv = document.getElementById('refi-results'); if (isNaN(currentP) || isNaN(newP) || isNaN(costs) || currentP <= 0 || newP <= 0 || costs < 0) { alert("Please enter valid positive numbers for all fields."); return; } var monthlySavings = currentP – newP; if (monthlySavings <= 0) { resultsDiv.style.display = 'block'; resultsDiv.style.borderColor = '#c62828'; resultsDiv.innerHTML = '

No Savings Detected

Your new payment is higher than or equal to your current payment. Refinancing may not be financially beneficial unless you are shortening your loan term significantly.'; return; } var monthsToBreakEven = Math.ceil(costs / monthlySavings); var yearsToBreakEven = (monthsToBreakEven / 12).toFixed(1); document.getElementById('savingsResult').innerHTML = 'Monthly Savings: $' + monthlySavings.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + ''; document.getElementById('monthsResult').innerHTML = 'Break-Even Point: ' + monthsToBreakEven + ' Months'; document.getElementById('yearsResult').innerHTML = 'Approximately ' + yearsToBreakEven + ' years to recoup your closing costs.'; resultsDiv.style.display = 'block'; resultsDiv.style.borderColor = '#d1d9e6'; }

Understanding Your Mortgage Refinance Break-Even Point

Deciding to refinance your mortgage is a significant financial move. While a lower interest rate is attractive, it isn't the only factor to consider. The break-even point is the most critical metric in determining if a refinance actually saves you money in the long run.

What is a Break-Even Point?

The break-even point is the moment in time when the cumulative monthly savings from your new mortgage payment finally equal the upfront costs you paid to get the loan (closing costs). Before this point, you are technically still "in the red" because of the fees paid to the lender, title company, and appraisers.

How to Calculate It

The math behind a refinance break-even analysis is straightforward:

• Step 1: Subtract your new monthly Principal and Interest (P&I) from your current P&I to find your Monthly Savings.
• Step 2: Total all Closing Costs (loan origination fees, appraisal, title search, etc.).
• Step 3: Divide the Closing Costs by the Monthly Savings.

Example Refinance Scenario

Imagine your current mortgage payment is $2,000. You are offered a new rate that drops your payment to $1,750, saving you $250 per month. However, the closing costs for this new loan are $6,000.

Calculation: $6,000 ÷ $250 = 24 Months.

In this example, you must stay in the home for at least two years just to break even. If you plan to sell the home in 18 months, this refinance would actually cost you money rather than saving it.

Key Factors to Watch

1. Duration of Residency: If you plan to move within the next 1-3 years, a high-cost refinance rarely makes sense.
2. Closing Costs: These typically range from 2% to 5% of the loan amount. Always ask for a "Loan Estimate" to see the hard numbers.
3. Loan Term: If you refinance from a 30-year mortgage you've held for 10 years into a new 30-year mortgage, you are extending your debt. While the monthly payment drops, the total interest paid over the life of the loan might actually increase.
4. Tax Implications: Mortgage interest is often tax-deductible. Consult with a tax professional to see how a lower interest rate affects your specific tax situation.

When is Refinancing a "No-Brainer"?

Generally, if you can lower your interest rate by 0.75% to 1% and you plan to stay in the home longer than your break-even period, it is a sound financial decision. "No-closing-cost" refinances are also available, where the lender covers the fees in exchange for a slightly higher interest rate, effectively making the break-even point zero months.