Mortgage Refinance Breakeven
How long will it take to breakeven on a mortgage refinance? That
depends on a multitude of factors including 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.
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.
Normally PMI is required if you have less than 20% equity in
your home, however for the refinance of loan guaranteed by Freddie
Mac or Fannie Mae you may not be required to pay PMI if your
current mortgage doesn't require it. Check with your lenders for
details. Check the box "do NOT include PMI" if this applies to your
refinance.
- 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.
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