Blog, Educate Yourself
What is the break-even period of your home loan?
March 7, 2009 by Mortgage Align · Leave a Comment
The break-even period is the time before the savings from the lower rate completely covers the upfront refinance costs.
How Do You Find the Break-Even Period?
• Income tax: This is the tax rate on your total income.
These federal tax brackets are 10%, 15%, 25%, 28%, 33%, and 35%. If you also pay state income taxes, you should add the highest bracket you used in connection with these taxes.
Remaining Term on present Loan: The number of months till the balance is paid if the payments remain the same.
Term on New Loan: For people looking for a fixed-rate mortgage (FRM), a 15-year term is the best bet.
Whether Points and Costs Are Paid in Cash or Financed: Finance the costs if you have to. However, having to finance the costs could swing the refinance from profitable to unprofitable.
Calculate them and then you will be able to find the break even costs easily.
