How to calculate the break-even point for your refi without long division.
Posted by Joelene
Tue 01 December 2020
Any homeowner knows the entire point of refinancing your home is to save money and be better off financially.
Groundbreaking revelations aside — whether you’re looking to get a low rate, pay it off earlier or take advantage of your home equity, you want to know exactly how much you’ll save before you commit.
But really, the question you should be focusing on first is when will a refi start to save you money?
Sure, your home loan payments may have taken a dip, or you’ve shaved 5 years off your loan, but you won’t be actually saving money until you’ve reached — and surpassed — your break-even point.
So WTF is a break-even point?
Before you put that refi in the too-hard basket, you don’t need to be an algebra master to calculate exactly when your refi sweet spot will be.
Think long-term savings, not short-term coins.
A common mistake homeowners make is getting so caught up in looking at great rates or potential savings that they forget the costs involved in a refi, and how long it’ll take to recoup them.
That’s where your break-even point comes in.
Your break-even point is when you have fully recouped those costs involved in your refi, and from there, any savings will put you ahead.
It’s an important figure to have in mind — if your break-even will take a few years to reach and you’re planning on packing up and selling before then you’re in for a loss.
Calculating your break-even is easier than your Sunday crossword*
If you think that figuring out your break-even point is just another calculation to add to the pile of refi research — well you’re not wrong.
But it is necessary — and way easier than you think. You’ll be done and back to that crossword before your coffee goes cold.
You can work out the numbers yourself with this ‘it’s really that easy’ equation below, or make things even quicker by jumping on a refinance breakeven calculator like this one here that’ll crunch the numbers for you.
Your break-even equation.
Get the right numbers to kick things off
You know how important your break-even point is. You’ve got the equation. Heck, you’ve even got a calculator to make things even easier.
But some numbers to jot into that calculator would be handy too.
A good rates calculator is the best place to start. You’ll be able to get ballpark numbers for your interest rate, APR, and closing costs — and with the right one — play around with different loan options so you can see not only what you’ll be paying, but how long until that sweet break-even moment.
If you’re short on time, our refi rates calculator can give you multiple rates and loan options to chuck into that calculator. We don’t charge origination fees either, so you can see your closing costs upfront and add them to the calculator too.
*P.S. The answer to 17 across is wheelbarrow.