Posts Tagged ‘refinance calculator break even’

Refinance Break Even Point – What People Do NOT Know

Refinancing Breakeven Point Calculation

This is one of the basic factors to check when thinking of refinancing your mortgage, and surprisingly this is one of the financial factors most people have the greatest error with. Calculating the refinance break even point is not difficult, and because of that many take the break-even short cut and can end up doing a crucial mistake!

What Is Refinance Break Even Point

The refinance break even point or break even period, is the amount of month a person needs to be living at the refinanced home , before the new mortgage savings take affect. his is commonly one of the first calculations someone refinancing needs to do, and because many do a basic mistake calculating their refinance break even point, they either quit or give up their chance to refinance!

 The Refinancing Break Even Point Breaks People’s Hope

Any mortgage broker you turn to, in order to begin your refinancing process, will ask you at the beginning of the meeting: “How much time do you plan to stay at your current home?”. Then they will run a short refinance break even calculation, and they will show you that you will break even within 31 month.. or 55 month..

Others will read refinancing articles and see there the simple refinancing break even calculation, they will do the math themselves, see the figures and the first thing the do is get disappeared and lose hope for refinancing.

The homeowners have no idea that the mortgage broker and most blogs are showing the most basic mistake of miscalculating the refinance break even point.

What Is The WRONG Refinancing Break Even Point Calculation

Before we review the CORRECT refinancing break-even calculation, it is important you meet the most common mistake usually done. This wrong calculation is done as a rule of thumb in most cases people do not use a breakeven calculator to do it but just simple math.

Lets say you have current monthly payments of $1500 and you run a refinance calculation to see if the refinancing would save you money and the NEW mortgage monthly payments are $1420. This means that refinancing will save you $80 per month.

But refinancing has costs and fees. These fees and costs are paid upfront at the closing of the new mortgage. Lets say the mortgage points were $2400. The basic break even calculation most people would do will then be, to divide the cost by the monthly savings.

This will give them the amount of month it would take to pay off the refinancing costs. In our example it would be 2400/80 = 30. This means it would take 30 month until the closing costs are paid and the real saving of the refinance would take place.

Mortgage Refinance Break Even Period

These 30 month are also called ‘break-even-period’ because if you move from your current home before the 30 month period, then there would be no savings for the refinance process at all. So the mortgage broker (and you) will need to know your future plans before determining that the refinancing was worthwhile the hassle.

Why The Break-Even Rule Of Thumb Is Wrong

There are several factors that this mortgage break even calculation misses, and these factors are critical before taking a decision whether to refinance or not. So lets do some analysis for the mortgage refinance breakeven point:

Loan Balance – There is a difference between the original mortgage principle and the refinanced principle. Different loan balance means that there is a different amortization chart for each, and this means that the borrower will probably owe LESS to the lender at the end of the 30 month with the refinanced mortgage.

Now if at the end of the 30 month (because of the different amortization process) the borrower owes $4000 less on their overall amount debt, the 30 month ‘break-even-point’ is not correct… and should be much sooner.

Time Value of Money. Cash payments you pay today are ‘worth’ more than money paid somewhere in the future. Why? Because if you have $5000 today, investing them in any investment plan the bank gives you, will make them worth in the future more than $5000. So placing a $5000 closing costs now, is not similar to the value of reaching the same $5000 within 30 month.

Tax Deduction. When dealing with money, every bit counts, and the overall picture needs to be seen. Points and interest rates are both tax detectable, but they have different tax value. The points are detectable for the same year of the loan, while the mortgage interest is tax detectable for the years they are paid.

How To Calculate The Mortgage Refinance Break-Even Point

Follow the steps below to find out is it worth for you to refinance your current mortgage.

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Other readers found these articles interesting too:

1. Refinancing Tips & Tricks
2. 5 Critical Steps At Mortgage Closing Meeting
3. What Is The Process Of Refinancing A Home Loan?

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Should I Refinance My Mortgage Now? 2011

Should I Refinance My Mortgage Now? 2011

2011 Refinance calculator

How much will I save if I refinance my mortgage today ?

If you are asking your self now at 2011 these kind of questions, then this refinancing calculator is perfect for you. There are some terms that when all are fit refinancing a mortgage is a great opportunity to save a lot of money, or shorten the mortgage month left till all money owed to the lenders are payed.

Before you check this “should I refinance calculator” you need to make sure you are doing the right move, and doing it for the right reasons.

Do you know what is your current credit score ? Do you know if your current mortgage loan has a penalty when prepayed ? Do you plan to stay at your current house for the years to come ?

Those two simple facts can throw your refinancing plans to the recycle bin for a year or two.. So before you take quick financial acts, try to find out if NOW is the right time for you to refinance.

Which of the next sentences, describes best what you are trying to do ?

1. I want to lower my interest rate.
2. I want to lower my monthly payments.
3. I want to refinance in order to cash out my home-equity.
4. I wish to refinance into a fixed-rate mortgage.
5. I am planning to consolidate my debt (with all my credit cards).

Refinancing can bring you closer to one of these.

This calculator will answer your question when does it pay to refinance your mortgage. If you can get a lower loan rate that will reduce your monthly payments, or shorten the month left, or combine two mortgages together than it is worth the effort.

Should You Refinance Your Mortgage

With the refinancing calculator you could also find out if it pays to change the mortgage you have from a fixed rate mortgage to an adjustable rate mortgage (ARM) and backwards too.

Run a few calculations on all your possible refinancing scenarios before you go to the bank or lender and apply for a refinancing program.

In case you didn’t know there are some government loans for home buyers you might want to check, most of them for first time home buyers but not all. And you might wish to learn more on the Obama housing plan – Home Affordable Refinance Program (HARP).