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Mortgage Breakeven Equation:
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The Mortgage Breakeven calculation determines how many months it will take to recover the costs associated with a mortgage decision (such as refinancing or purchasing points) through monthly savings. It helps homeowners make informed financial decisions about their mortgage options.
The calculator uses the breakeven equation:
Where:
Explanation: The equation calculates the time required for cumulative monthly savings to equal the total upfront costs of the mortgage decision.
Details: Breakeven analysis is crucial for determining whether a mortgage-related financial decision makes sense based on your expected timeframe in the home. It helps avoid financial losses from decisions that won't pay off within your planned ownership period.
Tips: Enter total costs in dollars and monthly savings in dollars per month. Both values must be positive numbers. The result shows the breakeven period in months.
Q1: What costs should be included in total costs?
A: Include all upfront fees such as closing costs, points purchased, appraisal fees, and any other expenses associated with the mortgage decision.
Q2: How is monthly savings calculated?
A: Monthly savings is the difference between your current monthly payment and the new monthly payment after the mortgage change.
Q3: What is a good breakeven period?
A: Generally, a breakeven period of less than 24-36 months is considered favorable, but this depends on how long you plan to stay in the home.
Q4: Does this calculation consider tax implications?
A: No, this is a basic calculation. Consult a tax professional for advice on how mortgage decisions affect your specific tax situation.
Q5: Should I proceed if the breakeven period is longer than I plan to stay?
A: Typically no - if you won't stay long enough to recover the costs, the decision may not be financially beneficial.