What is a Mortgage Refinance Breakeven Point Calculator?
A Mortgage Refinance Breakeven Point Calculator is a financial tool that helps homeowners determine when they will break even on their refinance. By inputting loan details, you can get an idea of how long it will take to recoup the costs of refinancing.
Formula for Mortgage Refinance Breakeven Calculation
The formula for calculating the future value of a loan is:
\[FV = P \times (1 + r)^n\]
Where:
FV = Future Value
P = Principal Loan Amount
r = Monthly Interest Rate (Annual Rate / 12)
n = Total Number of Monthly Payments (Loan Term in Years × 12)
Calculation Steps
Calculate the monthly interest rate by dividing the annual rate by 12.
Determine the total number of monthly payments by multiplying the loan term in years by 12.
Apply the formula to calculate the future value of the loan.
Calculate the total interest earned by subtracting the original loan amount from the future value.
Example
Let's consider a scenario with the following details:
Original Loan Amount: $200,000
Original Interest Rate: 4% per year
Appraised Value: $250,000
Term in Years: 30 years
Years Remaining: 25 years
Income Tax Rate: 25%
Calculation:
Monthly interest rate: 4% / 12 = 0.3333%
Number of monthly payments: 30 × 12 = 360
Future value: $648,000.00
Total interest earned: $448,000.00
Green: Principal ($200,000) | Red: Total Interest ($448,000.00)
In this example, the borrower would have a future value of $648,000.00 after 30 years. The total interest earned would be $448,000.00, demonstrating the cost of borrowing over time.
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