How long will it take to break even on a mortgage refinance?

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payment table with calculatorRefinancing can be a great way to reduce your monthly mortgage payment, pay your home loan off sooner or consolidate debt. But refinancing doesn’t always make good financial sense for every situation. Low equity, little money to put down or an impending relocation and subsequent sale of the home are a few reasons refinancing may not be a great idea. On the other hand, refinancing can save a homeowners several thousand or even hundreds of thousands of dollars. But how do you know when a refinance will pay off?

The so-called “break even point” is the amount of time it will take before the savings from your refinance will exceed the cost. The break even point is different for everyone, since it is determined through a number of different factors, including…

  • Your original loan amount
  • The original interest rate
  • The term of your original loan
  • The term of your new loan
  • The interest rate of the new loan
  • The new amount being financed
  • Estimated closing costs for the refinance
  • How many payments you’ve already made on your original loan

Instead of trying to calculate all this on your own, the easiest thing to do is to use an online break even point calculator.

If your break even point won’t take place for three years, but you’re job is transferring you at the beginning of next year, refinancing will obviously not make sense – unless you decide to keep your property and rent it out after you move. If your break even point will occur in 1 year, and you plan on being in your home for a long time, then refinancing could be a terrific idea. Every homeowner’s situation is different, and you should always consider your own personal financial capabilities before entering into a new home loan agreement. What may work for one homeowner might not be suitable for another.

If you’d like to discuss your situation with a qualified lender, feel free to browse our database of current refinancing rates and compare them from multiple lenders. Contact information in listed for each lender, so don’t hesitate to give them a call.

Nat Criss is one of the owners of Nat has an extensive background in mortgage finance, real estate, and online marketing. Nat was previously the Marketing Director for AAXA Discount Mortgage, a mortgage company which conducted business in 26 states, and currently helps run CMG Equities, LLC and ILM Marketing. My Google Profile+

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