Thinking about refinancing your home, but uncertain if itâs the best decision for you financially?
One way to determine if refinancing makes sense for you is to calculate whatâs referred to as the breakeven point.Â
The refinance breakeven refers to the point at which the savings from your new home loan are more than the cost it took to get the new loan. Essentially, the breakeven point is when youâve made up the difference from adding closing costs into your new loan.
For example, letâs say you purchased your home 5 years ago for $200,000 at an interest rate of 7%.Â Your current monthly payment would be $1330, and youâd have a remaining balance of $188,264. If you were to refinance at a 4% interest rate, your new monthly payment would be $955 and youâd reach the breakeven point after only 11 months!
If you have plans on moving prior to that, it wouldnât make sense for you to refinance. However, if you plan to stay in your home beyond the next year, then the time to refinance is now!
Before signing for a new loan, you can calculate when your breakeven point will occur.Â Be sure to use the handy Freedom Mortgage Breakeven calculator when youâre trying to decide if a refinance is the right thing for you.
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