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Calculate exactly when your refinance pays for itself.

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Refinance Analysis Results

New Monthly Payment:

Monthly Savings:

Time to Break-Even:

Understanding Your Refinance Break-Even Point

Refinancing a mortgage can save you thousands of dollars over the life of the loan, but it isn't free. Lenders charge fees—often called "closing costs"—to process the new loan. The break-even point is the specific moment when the cumulative monthly savings from your lower interest rate exceed the upfront costs you paid to get that rate.

How the Calculation Works

To find your break-even point, we follow a three-step mathematical process:

1. Calculate the New Payment: We use the standard amortization formula to determine your new Principal and Interest (P&I) payment based on the current balance and the new, lower rate.
2. Determine Monthly Savings: We subtract your new payment from your current payment. The difference is your "found money" each month.
3. Divide the Costs: We take your total estimated closing costs (e.g., $5,000) and divide them by your monthly savings (e.g., $200). In this example, it would take 25 months to break even.

Example Scenario

Suppose you have a $350,000 balance at a 7.0% interest rate. You are offered a new rate of 5.5% with closing costs of $7,000.

• Old Payment: ~$2,328 (Principal + Interest)
• New Payment (30 yr): ~$1,987
• Monthly Savings: $341
• Break-Even: $7,000 / $341 = 20.5 Months

In this case, if you plan to stay in the home for more than two years, the refinance is a financially sound decision.

Important Considerations

While the break-even point is a critical metric, consider these additional factors:

• Loan Term Reset: If you are 5 years into a 30-year mortgage and refinance into a new 30-year loan, you are extending your debt by 5 years. This might lower your monthly payment but increase the total interest paid over time.
• Cash-Out Refinance: If you are taking equity out of your home, the break-even calculation changes as your primary goal might be debt consolidation rather than just interest reduction.
• Tax Implications: While mortgage interest is often tax-deductible, laws vary. Consult a tax professional to see how a lower interest payment impacts your deductions.

function calculateRefinance() { var balance = parseFloat(document.getElementById('loanBalance').value); var costs = parseFloat(document.getElementById('closingCosts').value); var currentRate = parseFloat(document.getElementById('currentRate').value); var newRate = parseFloat(document.getElementById('newRate').value); var termYears = parseFloat(document.getElementById('loanTerm').value); if (isNaN(balance) || isNaN(costs) || isNaN(currentRate) || isNaN(newRate) || balance <= 0) { alert('Please enter valid numerical values for all fields.'); return; } // Monthly interest rates var monthlyCurrentRate = (currentRate / 100) / 12; var monthlyNewRate = (newRate / 100) / 12; var numberOfPayments = termYears * 12; // Calculate payments using Amortization Formula: P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ] var currentPayment = balance * (monthlyCurrentRate * Math.pow(1 + monthlyCurrentRate, numberOfPayments)) / (Math.pow(1 + monthlyCurrentRate, numberOfPayments) – 1); var newPayment = balance * (monthlyNewRate * Math.pow(1 + monthlyNewRate, numberOfPayments)) / (Math.pow(1 + monthlyNewRate, numberOfPayments) – 1); var monthlySavings = currentPayment – newPayment; var resultsArea = document.getElementById('resultsArea'); var resNewPayment = document.getElementById('resNewPayment'); var resMonthlySavings = document.getElementById('resMonthlySavings'); var resBreakEven = document.getElementById('resBreakEven'); var adviceText = document.getElementById('adviceText'); if (monthlySavings 0) { timeString += years + (years === 1 ? ' Year ' : ' Years '); } timeString += months + (months === 1 ? ' Month' : ' Months'); resBreakEven.innerHTML = timeString + ' (' + Math.ceil(breakEvenMonths) + ' total months)'; if (breakEvenMonths < 36) { adviceText.innerHTML = 'This is a strong refinance candidate. You will recoup your costs in less than 3 years.'; } else if (breakEvenMonths < 60) { adviceText.innerHTML = 'This refinance has a moderate break-even period. Ensure you plan to stay in the home for at least 5 years.'; } else { adviceText.innerHTML = 'This is a long break-even period. It may only be worth it if you plan to keep the property as a long-term rental or forever home.'; } } resultsArea.scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }