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How Can I Figure Out My Breakeven On A Refinance?
(presented by www.refinance-refinance.net - mortgage lenders)



By Ben Afzal

Basics

When you are refinancing to lower your payments you will have some closing costs to pay. The exception to this is a “no closing cost” option which just traded no closing costs for a higher interest rate.

If you are refinancing to cash out equity you may not be able to break even because you are substantially increasing your loan size.

This is an exercise for people who are looking to refinance to lower their monthly payments.

You should factor in:

  • prepayment penalty
  • closing costs

Your prepayment penalty is the charge your current lender will make for paying off their loan with another loan (refinancing your current loan). Many mortgages do not have prepayment penalties but some do. Check wtih your current lenders to see what the cost of your prepayment is if there is one.

Your closing costs will come from loan offers you get from various mortgage lenders.

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You may make an estimate of what you think your closing costs will be. Often times these closing costs are 1%-2% of the loan size.

You can calculate your new monthly payment with your new loan terms. Factor in your new loan size, new interest rate, and new loan term.

Your new payment should be less than your current one. Find out how much your monthly payment is lowered by comparing this with your current payment.

Now divide your closing costs by your monthly savings. This should tell you how many months it will take for you to break even on your refinance.

Foe example, if your closing costs are $1,000 dollars and your monthly savings are $100, it will take you ten months to break even on the refinance.

There are many free mortgage calculators available online to help you.

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This entry was posted on Thursday, October 12th, 2006 at 2:19 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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