1. What is the Break Even Calculation?

The break even calculation determines how many months it will take to recover the cost of mortgage points through monthly payment savings. This helps homeowners decide if paying points for a lower interest rate is financially beneficial.

2. How Does the Calculator Work?

The calculator uses the break even formula:

Where:

• \( BE \) — Break even time in months
• \( PC \) — Points cost in dollars
• \( MS \) — Monthly savings in dollars per month

Explanation: The equation calculates how many months of savings are needed to offset the upfront cost of mortgage points.

3. Importance of Break Even Analysis

Details: Break even analysis is crucial for making informed decisions about mortgage refinancing. It helps determine if the long-term savings justify the upfront cost of purchasing points.

4. Using the Calculator

Tips: Enter the total cost of points in dollars and the expected monthly savings from the refinance. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are mortgage points?
A: Mortgage points are fees paid to the lender at closing in exchange for a reduced interest rate. Each point typically costs 1% of the loan amount.

Q2: How do I calculate points cost?
A: Points cost = (Loan amount) × (Points percentage) ÷ 100. For example, 2 points on a $200,000 loan would cost $4,000.

Q3: What is considered a good break even period?
A: Generally, a break even period of less than 3-5 years is considered favorable, but this depends on how long you plan to stay in the home.

Q4: Should I pay points if I plan to move soon?
A: If you plan to move before reaching the break even point, paying points may not be financially beneficial.

Q5: Are points tax deductible?
A: Points paid for a home purchase mortgage are generally tax deductible in the year paid. Points for refinancing are usually deductible over the life of the loan.