How to calculate the break-even period on a mortgage refinance or when buying discount points?


When refinancing borrowers need to know how to calculate the break-even period so that they know when their closing costs will be recovered. The lower the interest rate of the new home loan, the sooner the break-even will occur.

How is the break-even period calculated exactly?

To answer this, you need to know the following:

  1. Your monthly payment before the refinance;
  2. Your monthly payment after refinancing;
  3. Your refinance closing costs (points and fees).

The formula is 3 / (1 - 2).

That is, if your refinance closing costs are $4400 and after the refinance your monthly payment drops down with $110 the break even occurs after 40 months.

The same approach applies when calculating the break-even on buying mortgage points.

Borrowers often want to know how to determine how many points to buy to lower their monthly payment. The break-even is calculated in exactly the same way.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.9/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: