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Break-Even Formula:
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The Mortgage Comparison Calculator With Points helps determine the break-even point when comparing mortgages with different points options. It calculates how many months it will take for the savings from a lower interest rate to offset the cost of paying points upfront.
The calculator uses the break-even formula:
Where:
Explanation: The equation calculates how long it takes for the monthly savings (minus any additional interest) to cover the upfront cost of mortgage points.
Details: Calculating the break-even point is crucial for making informed decisions about whether paying points for a lower interest rate is financially beneficial based on how long you plan to stay in the home.
Tips: Enter the points cost in dollars, monthly savings in dollars, and any additional interest costs. All values must be positive numbers, and monthly savings must be greater than additional interest.
Q1: What are mortgage points?
A: Mortgage points are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point typically costs 1% of the mortgage amount.
Q2: When does it make sense to pay points?
A: Paying points makes sense if you plan to stay in the home longer than the break-even period, as you'll recoup the upfront cost through lower monthly payments.
Q3: How accurate is this calculation?
A: This provides a good estimate, but actual results may vary based on tax implications, opportunity cost of the upfront payment, and other financial factors.
Q4: What if my break-even period is very long?
A: A long break-even period (5+ years) may indicate that paying points isn't the best financial decision unless you're certain you'll stay in the home for that duration.
Q5: Can this calculator be used for refinancing decisions?
A: Yes, the same break-even calculation applies when deciding whether to pay points for a lower rate when refinancing a mortgage.