Mortgage Refinance Breakeven

How long will it take to breakeven on a mortgage refinance? That depends on a multitude of factors. These factors include your current interest rate, the new potential rate, closing costs and how long you plan to stay in your home. Use this calculator to sort through the confusion, and determine if refinancing your mortgage is a sound financial decision. Click the "View Report" button for a detailed look at your records.

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Breakeven Measures

The table below lists four different breakeven measurements. The computations become more conservative as you move down the list. Most people feel comfortable using methods 2 and 3. If you are planning on staying in your home longer than these measures, refinancing is a very good option.

Measure	Months	Definition
1. Monthly payment savings:	BREAK_EVEN_PAYMENTS	The number of months it will take for your monthly payment reduction to be greater then your closing costs.
2. PMI & interest savings:	BREAK_EVEN_INTEREST	The number of months it will take for your interest and PMI savings to exceed your closing costs.
3. Total savings after tax:	BREAK_EVEN_TAX_INTEREST	The number of months it will take for the after-tax interest and PMI savings to exceed your closing costs. Your income tax rate was entered as INCOME_TAX_RATE.
4. Total savings vs. prepayment:	BREAK_EVEN_PREPAY	This is the most conservative breakeven measure. It is the number of months it will take for the after-tax interest and PMI savings to exceed both the closing costs and any interest savings from prepaying your mortgage. The prepayment amount used in this calculation is the amount that you would have to spend on closing costs.

Refinancing Summary

Refinancing will change your monthly payment for principal, interest and PMI from CURRENT_PAYMENT to NEW_PAYMENT. Your new loan will be NEW_LOAN_BALANCE at NEW_RATE for NEW_LENGTH years. Closing costs are estimated at TOTAL_CLOSING_COSTS. To avoid PMI payments on your new loan NEW_LOAN_20_EQUITY in equity is required. This equals PMI_PERCENT of your home's current appraisal price.

Original Loan		New Loan
Mortgage amount	ORIGINIAL_LOAN_AMT	Mortgage amount	NEW_LOAN_BALANCE
Appraised value	OLD_LOAN_APPRAISED_VALUE	Appraised value	NEW_LOAN_APPRAISED_VALUE
Interest rate	CURRENT_RATE	Interest rate	NEW_RATE
Term in years	CURRENT_LENGTH	Term in years	NEW_LENGTH
Years remaining	CURRENT_YEARS_REMAINING	Years remaining	NEW_LENGTH
PI payment	CURRENT_PI	PI payment	MONTHLY_PI
Monthly PMI	CURRENT_MONTHLY_PMI	Monthly PMI	MONTHLY_PMI

Payment Schedule Comparison

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Definitions

Original mortgage amount: Original amount of your mortgage.
Appraised value: The appraised value of your home when you purchased it.
Current term in years: Total length of your current mortgage in years.
Years remaining: Number of years remaining on your current mortgage.
Income tax rate: Your current income tax rate.
Calculate balance: To let the calculator determine your remaining balance, based on your original loan information and years remaining, check this box. To enter your own amount, leave this box unchecked.
Current appraised value: The current appraised value of your home.
Loan balance: Balance of your mortgage that will be refinanced.
New interest rate: The annual interest rate for the new loan.
New term in years: Number of years for your new loan.
Loan origination rate: This is the percentage of the new mortgage that is paid to the lender as the loan origination fee. Typically this fee is 1% of the loan balance.
Other closing costs: Estimate of all other closing costs for this loan. This should include filing fees, appraiser fees and any other miscellaneous fees paid.
Points paid: This is the number of points paid to the lender to reduce the interest rate on the mortgage. Each point costs 1% of the new loan amount.
Current payment: Your current payment is the sum of principal, interest and PMI (Principal Mortgage Insurance). Because refinancing does not affect your insurance or taxes, they are not included here.
New payment: Your new payment is the sum of principal, interest and PMI.
Monthly PMI payment: Monthly cost of Principal Mortgage Insurance (PMI). For loans secured with less than 20% down, PMI is estimated at 0.5% of your loan balance each year. Monthly PMI is calculated by multiplying your starting loan balance by this percent and dividing by 12. When the equity in your home exceeds the percentage required for PMI, your PMI payment drops to zero.
Monthly PI payment: Monthly principal and interest payment.
Breakeven monthly payment savings: The number of months it will take for your monthly payment reduction to be greater than closing costs.
Breakeven PMI & interest savings: The number of months it will take for your interest and PMI savings to exceed your closing costs.
Breakeven total savings after-tax: The number of months it will take for your after-tax interest and PMI savings to exceed your closing costs.
Breakeven total savings vs. prepayment: This is the most conservative breakeven measure. It is the number of months it will take for your after-tax interest and PMI savings to exceed both your closing costs and any interest savings from prepaying your mortgage. The prepayment amount used in this calculation is the amount that you would have to spend on closing costs.