Refinance Breakeven Calculator
A refinance breakeven calculator is a tool that helps homeowners determine whether refinancing their mortgage is a financially sound decision. It calculates the time for the monthly savings from a new mortgage to offset the refinancing costs.
Use the refinance breakeven calculator to estimate when your savings from refinancing your loan exceed its costs. Like Refinance Breakeven Calculator, you may also use Commission Calculator.
How to calculate mortgage refinance breakeven?
Most people who refinance their mortgage loans aim for a lower monthly payment by obtaining a lower interest rate on the new loan. If this is your goal, you must ensure you will keep your home (and the new loan) long enough to compensate for the costs arising from refinancing. The day when you reach this specific stage refers to the breakeven point.
To do this, we must answer how to calculate the breakeven point on refinancing. It’s simple. Do it by dividing the total loan costs (or closing costs) by the monthly savings (the difference between the monthly payment of the original and the new loan).
Refinance breakeven point = Closing costs / Monthly savings.
Let’s consider a simple example to calculate mortgage refinance breakeven. Refinancing costs AED 2,000, and you will save AED 100 a month. Divide AED 2,000 by AED 100. The answer is 20. That means it will take 20 months to compensate for the refinancing cost, which is your breakeven point. In other words, after a 20-month breakeven point, you will begin to save money due to your refinancing.
However, you need to keep in mind that even though your monthly payments are less, you may end up paying more in total interest if the loan term of your new loan is longer than the remaining term of your original loan at the time of refinancing.
FAQs related to Refinance Breakeven Calculator
Q: How to calculate the breakeven point for a mortgage refinance?
A: To calculate refinance breakeven point, divide the total loan costs by the monthly savings. The total cost of refinancing is AED 2,000, and you will save AED 100 a month. Divide AED 2,000 by AED 100, and you will get the answer, which is 20 months.
Q: What is a breakeven point of a refinance loan?
A: A breakeven point is when your accumulated savings, resulting from refinancing your existing loan, exceed the cost of the new loan. In other words, the breakeven point occurs when you begin to save money.
Q: How long should it take to break even on a refinance?
A: A crucial aspect of the refinancing process is estimating when you would break even on these costs and start saving money on the transaction. Sometimes, it can take two or three years to break even, but it is worth waiting if the loan term is long enough.
Q: What is a refinance breakeven rule of thumb?
A: The refinance breakeven point equals the closing costs divided by the monthly savings. It means that if saving money is the main reason for refinancing, the new loan should be kept until the refinance breakeven point. That’s the general refinance breakeven rule of thumb for refinancing success.