Refiinance
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 a calculator to sort through the confusion, and
determine if refinancing your mortgage is a sound financial
decision.
Refiinance 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 misc. 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.
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