If you can refinance your mortgage at a lower interest rate than you now are, you may be able to save money. However, refinancing has charges as well; closing costs can be anywhere between 2% and 6% of the loan amount. Check out our refinance breakeven calculator to see how long this process might take for your circumstances.

But you may want to know if you are lowering your mortgage rate sufficiently to cover those expenses. Using a refinance break-even calculator, you can calculate how long it will take your savings from a lower mortgage rate to pay for the costs of refinancing.

With the help of this calculator, homeowners in Canada may quickly determine whether it makes sense to refinance their mortgage into a new loan with a lower interest rate.

It determines the number of months it will take for the refinance interest and payment savings, coupled with the monthly loan payments and net interest savings, to cover the closing expenses of the new loan.

Refinance Breakeven Calculator Overview

So when is refinancing your mortgage worthwhile? Generally speaking, you should be able to lower your mortgage rate when refinancing by at least one percentage point, although that’s a rather modest estimate. The key question is how quickly can you recover your closing fees in relation to the length of the mortgage.

You might be able to recover your closing expenses in less than four years if you lower your mortgage rate by a whole percent. That’s fairly quick and would probably be worthwhile for you. You won’t recover your closing costs, though, if you intend to transfer within the next three years.

The benefits of a refinance that takes eight years to pay off your charges, however, may be minimal. However, if you still have 20 years left on your mortgage, intend to remain in the home for that long, and believe that rates won’t go any lower; it can be worthwhile to take this into account.

Some people who refinance don’t save as much as they thought they would because they don’t think about the tax implications. In the event that you itemize your deductions, you almost certainly deduct mortgage interest.

However, if you refinance to a lower rate, your tax deduction is reduced and you end up paying more. You can account for that using a feature in the calculator.

Refinance Breakeven Calculator Definitions

Original mortgage amount

This is your mortgage’s original balance.

Appraisal value

This is your home’s appraised worth at the time you bought it.

Current interest rate

This represents the annual interest rate that is applied to your loan.

Current term in years

This is the total number of years of your current mortgage.

Years remaining

This is the number of years left on your current loan.

Income tax rate

This is the current tax rate on income.

Calculate balance

Check this box if you want the calculator to calculate your remaining balance using the details of your original loan and the number of years left. 

Current appraised value

This is how much your house is currently worth after appraisal.

Loan balance

This is your mortgage’s remaining balance that will be put into refinancing.

New interest rate

This represents the yearly interest rate on your new loan.

New term in years

The length of your new debt in years.

Loan origination rate

The percentage of the new mortgage that the lender receives as a loan origination charge is represented by this number. It usually amounts to 1% of the loan balance.

Points paid

This is the amount of points given to the mortgage lender to lower the interest rate. One percent of the additional loan amount is required for each point.

Other closing costs: The estimated total for all other loan closing expenses. Included here should be any appraiser fees, filing fees, and additional costs.

Monthly PMI payment

The yearly cost of principal mortgage insurance (PMI), which repeats every month, is anticipated to be 0.5% of your loan balance for loans issued with a rate below 20% down. By calculating your initial loan balance by this percentage and dividing the outcome by 12, you may determine your monthly PMI.

Your PMI payment becomes zero when your home’s equity is greater than the threshold required for PMI.

When refinancing a loan backed by Freddie Mac or Fannie Mae, you may not be required to pay PMI if your current mortgage does not demand it. Normally, PMI is required if you have less than 20% equity in your house. For more information, contact your lenders. If PMI is required for your refinance, select the “do NOT include PMI” checkbox.

Current payment

The total of your current payment includes interest,  principal, and PMI (Principal Mortgage Insurance). These are not included because refinancing has no impact on your taxes or insurance.

New payment

This is the addition of the interest, principal, and PMI.

Monthly PI payment

This is the principal and interest paid every month.

Breakeven monthly payment savings

This indicates the time frame for your monthly payment to fall by greater than the closing costs.

Breakeven PMI & interest savings

The number of months needed for your PMI savings and interest to exceed your closing costs.

Breakeven total savings after-tax

This indicates when your PMI savings and after-tax interest will be greater than your closing costs.

Breakeven total savings vs. Prepayment

The most conservative method of determining breakeven is this one. This is the amount of time in months it will take for your PMI savings and after-tax interest to exceed your closing costs and any interest savings from paying off your mortgage early.

You would have to pay closing expenses in addition to the prepayment amount used in this computation.

Thanks for checking out our refinance breakeven calculator.

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