Use this **refinance mortgage calculator** to quickly determine the critical **Break-Even Point**—the number of months it takes for your monthly savings to cover the total refinancing closing costs. Input three of the four variables, and the calculator will solve for the missing one.
Refinance Mortgage Calculator
The calculated result is:
Detailed Calculation Steps
Refinance Break-Even Formula
The primary calculation is based on determining the time required to recoup the upfront costs through monthly savings.
Formula Sources: Consumer Financial Protection Bureau | Freddie Mac Refinance Guide
Variables Explained
The calculator uses the following variables, allowing you to solve for any missing component:
- Current Monthly Payment ($): The principal and interest amount you currently pay on your existing mortgage.
- New Monthly Payment ($): The anticipated principal and interest amount of the new, refinanced mortgage.
- Refinance Closing Costs ($): The total upfront fees associated with obtaining the new loan (appraisal, title, origination, etc.).
- Break-Even Point (Months): The primary result; the number of months until your cumulative savings equal the closing costs.
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What is a Refinance Mortgage Calculator?
A refinance mortgage calculator is a crucial financial tool designed to help homeowners evaluate the benefit of replacing their existing mortgage with a new one. The primary goal of most refinancing efforts is to secure a lower interest rate, reduce the monthly payment, or change the loan term (e.g., from 30 years to 15 years).
This particular calculator focuses on the **Break-Even Analysis**. Refinancing is only financially beneficial if you plan to stay in the home long enough for the savings to fully offset the upfront closing costs. This tool provides that exact time frame, empowering you to make a data-driven decision about your home loan.
How to Calculate Break-Even Point (Example)
Let’s use a step-by-step example to find the Break-Even Point:
- Determine Monthly Savings: Subtract the New Monthly Payment from the Current Monthly Payment. (Example: $2,000 Current – $1,700 New = $300 Savings).
- Identify Closing Costs: Gather all the associated fees for the new loan (e.g., $5,000).
- Apply the Formula: Divide the total Closing Costs by the Monthly Savings. (Example: $5,000 Closing Costs / $300 Savings = 16.67 Months).
- Interpret the Result: The result (16.67 months) means you must keep the new loan for just over 16 months before you start truly saving money.
Frequently Asked Questions (FAQ)
What is the typical range for Refinance Closing Costs?
Closing costs typically range from 2% to 5% of the new loan principal. For a $300,000 loan, this would be between $6,000 and $15,000. These costs can often be rolled into the new loan principal, but doing so increases the break-even time.
Is a lower interest rate always a good reason to refinance?
Not necessarily. While a lower rate is attractive, the key is the calculated Break-Even Point. If the break-even time is longer than you plan to stay in the home, you will lose money overall. Always perform the break-even analysis first.
What is the difference between ‘Rate and Term’ and ‘Cash-Out’ refinancing?
A ‘Rate and Term’ refinance focuses solely on lowering the interest rate and/or changing the loan term. A ‘Cash-Out’ refinance allows you to borrow more than you owe on the current mortgage, taking the difference as cash, which often results in higher closing costs and a longer break-even point.
Should I include property taxes and insurance in my monthly payment inputs?
For the Break-Even calculation, it is best practice to use only the Principal and Interest (P&I) components of the payments, as the Taxes and Insurance (T&I) are usually consistent and do not affect the savings derived from the new loan’s lower rate.