You can see that the borrower would never break-even on the cost of this refinance. Though the monthly payment would be slightly lower even the 10 years remaining on the loan would not be enough to recoup the fees!
Refinance Summary
| Principal Balance | $4,298 |
| Interest Rate | (1.000%) |
Monthly Payment
(Principal and Interest) | ($15) |
| # of Remaining Monthly Payments | 0 |
Total Remaining Payments
(Principal and Interest) | ($1,813) |
| Total Remaining Interest | ($6,111) |
A Refinance That Doesn't Break-Even - Example
In this example, we look at the financial impact of refinancing into a new mortgage with a 1% lower interest rate and term that is equal to the number of payments remaining on the current mortgage. We assume the current mortgage has been paid for 20 years and has 10 years of payments remaining. The new mortgage is due in 10 years. We have also assumed that the house will be sold in 10 years and that the refinance costs $3,000 plus 1 point. 1 point is equivalent to 1% of the new loan amount. Finally, we've made standard assumptions for the rest of the parameters.
After reviewing this example, enter your information into the refinance calculator to help you decide if you should refinance now.
Refinance Calculator
Refinance Calculator Examples
- Break-Even
- The break-even point is the amount of time it will take for your mortgage savings to equal the amount you paid up front. The break-even point for your refinance is the amount of time it will take for your refinance savings to equal the cost of your refinance. The break-even for paying discount points is the amount of time it will take for your savings to equal the amount you paid for points
- Cash Out
- The amount of money the borrower will receive after closing the loan. This is more common for refinances than for purchases.
- Income Tax Rate
- Your marginal income tax rate is the rate at which any additional dollars of your income would be taxed at.
- Interest
- The portion of your mortgage payment that is due to the interest rate being applied to the principal balance. The Total Interest for a mortgage is the sum of all interest paid over the life of a loan.
- Interest Rate
- The percentage of the principal balance of your mortgage that determines how much interest you must pay. The interest rate on your mortgage may change or remain the same depending on the type of loan you have.
- Investment Earnings
- Your investment earnings are the average annual percentage rate you expect to earn on your investments.
- Loan Amount
- The initial principal balance or your mortgage at closing.
- Principal
- The portion of your mortgage payment that is used to pay down the current balance of your mortgage. The principal balance represents how much you owe on the mortgage.
- Refinance Fees
- All closing costs for the new mortgage, including any discount points, loan origination fees, appraisal fees, title insurance, etc...
- Refinance Savings/(Loss)
- The refinance savings/(loss) estimates how a refinance will impact your financially.
- Term
- The amortization term is one of the key factors that determine your required mortgage payment. Your required mortgage payment for fully amortizing mortgages is the amount that would result in the mortgage being closest to being paid off by the end of the amortization term. Longer amortization terms result in lower required mortgage payments for fully amortizating mortgages, all other things being equal.