WHAT IS YOUR REFI BREAK EVEN POINT?
February 28th, 2009 categories: Market Trends
Your break-even point is the amount of time it will take to recapture the cost of your refinance with lower monthly payments. There is no general rule for a maximum pay back period–three years or less is probably reasonable. This is assuming you will keep you mortgage that long.
If you can get a genuine zero cost refinance, of course your break-even point is immediate. A genuine no cost refinance has no up front money and your loan and your interest rate stay the same.
To figure your break-even point exactly, divide the total cost of your refi by your monthly savings on your mortgage payment. This will give you the number of months required to recoup the cost of the refi. If your current loan has an adjustable rate or if your new loan will have a longer or shorter term, the break even point is more complicated. Other things to consider are will your new loan require mortgage insurance? Are you willing to pay points to lower the interest rate? Do you want some equity for credit cards or a car loan?
One important last word–Lenders and mortgage brokers are all saying that borrowers should absolutely, positively get a fixed-rate mortgage. If your present loan is an ARM, it might be worth some money to change it to a fixed-rate.
Related Articles: Must Haves For A Mortgage Application, 2-09; Home Affordability And Mortgage Rates, 2-09
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