Understanding the Refinance Break-Even Point

With mortgage interest rates still low, it remains an ideal time for many homeowners to refinance. One thing to consider however, before jumping on the refinancing bandwagon, is to find out what your refinance break-even point is. This refers to the point at which you are able to recoup the costs of the new loan and you begin saving money.

How long does it take to break-even?

The amount of time it takes to recoup the costs of the loan depends on several factors like your new interest rate. For some individuals it could be a lot quicker than it is for others. It’s important to think about the reason you want to refinance to begin with and how much it will cost. Your goal might be to lower your monthly payment or shorten the term of the loan so that you pay less interest in the long run.

You might want to refinance your home for other reasons like getting rid of mortgage insurance or taking cash-out from the equity that’s accumulated to pay for home renovations or pay down credit card debt. After considering your objectives and calculating how long it will take to break-even, you’ll need to determine whether you are comfortable with the length of time. There is no rule-of-thumb when it comes to refinancing. You just have to make sure that it makes sense for you and that the benefits outweigh the costs.

What are the costs to refinance your mortgage?

Aside from determining how long it will take to break-even, you should also think about how much it will take too. In general, the costs to refinance your mortgage will include and closing costs, such as:

  • Fees to the bank: These include application fees, as well as any discount points that the bank charges.
  • Title costs: This includes a title search and insurance.
  • Other costs such as appraisal costs, fees for a credit report or attorney’s fees.
  • Charges by the escrow company
  • Calculate the break-even point on a mortgage refinance

You can now calculate how many months it will take to break even by dividing the total loan costs by the monthly savings.
If the number of months that you’ll pay on your new refinance is a lot more than the number of payments that remained on your original loan, you could be paying a lot of extra interest.

When You Start to Save a Lot of Money

When you refinance to a shorter term, the focus is not so much to have a lower monthly payment but instead, the goal is to save a lot of money in total interest.

Other Factors to Consider

Other questions to ask yourself when considering refinancing are:

  • How long have you had the loan?
  • How much have you paid down?
  • How long do you intend to remain in this home?

The answers to these questions will affect what break-even point will be most comfortable and make sense to you.

If you need some help figuring out your refinance break-even point, use this handy refinance calculator or contact one of our helpful agents to explain it to you in detail.



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5 Reasons Why Now Is a Good Time to Refinance

For many homeowners, refinancing could provide several potential benefits. One of the primary reasons why people refinance their mortgage is to lower the interest rate. If rates have dropped since you last financed your home, you may want to consider refinancing. Other common reasons to refinance include paying off a balloon payment, converting an adjustable rate loan to a fixed rate loan, or being able to extract cash equity from your home (cash out). Sometimes homeowners cash out to make home improvements, to create an education fund, or consolidate debt. The exact reasons why someone should refinance may vary and should be considered carefully. However, choosing the right time to refinance can be equally important. Here are five reasons why now is a good time to refinance.


Rates could be on the rise

The average 30-year fixed mortgage rate rose above 3.0% once again in the past week, and may continue to rise slowly. If you are thinking of refinancing your home, now may be a good time to start the process so that you can lock in rates before they have a chance to rise.


Interest rates are still low

Rates are still low! Looking at where rates have been historically, refinancing now is still an unusually great deal, despite the recent rate rise.


Don’t be left out

Over 70% of homeowners have not taken advantage of the low rates during the pandemic, and still have yet to refinance. The opportunity will eventually pass and you don’t want to find yourself wishing that you had seized the chance to save money.


Lower your monthly payments

Borrowers can cut down their monthly payments and free up more of their income going into the next year. This could leave more funds for home projects, savings, or offsetting the potential increase in monthly expenses due to the rising prices of consumer goods.


Higher home values

The real estate market has seen historic increases in home values in recent months. Many homeowners have more equity in their homes than ever before. This will give you a lower LTV (loan-to-value) ratio, which could potentially make it easier for you to get approved and qualify for an even better rate. It could also help if you are looking to cash-out.

If you are thinking about refinancing your mortgage, then give us a call to get a quick and easy interest rate quote and get pre-approved in less than 5 minutes! Or submit the form below to get started.


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