Break Even Point

The break even point is the time it will take for your savings to equal the cost of either refinancing or paying a discount / buy down point. For example if refinancing or paying a discount point will cost you $5,000, and saves you $200 each month. It will take you 25 months or just over 2 years before your savings exceed the original cost of the transaction. If you are planning on refinancing or selling the property before that break even point it does not make sense.

Your loan officer should figure out the break even point for you to tell you whether or not the loan makes sense. Unfortunately, it's his or her paycheck that is riding on you refinancing your loan. They may not be so eager to tell you that the loan isn't in your best interests, because it would mean that they don't get paid for helping you with your loan.

If you are refinancing to get a lower interest rate, or lower your payments then it is important to find your break even point, however many people choose to refinance for other reasons that would not allow an apples to apples comparison. A couple examples would be if you are taking cash out of your home, or consolidating high interest debt.

If you don't plan to keep the property for very long, it is definitely possible that you will leave the property before your break even point. If this is the case, it is in your best interest to pay as little fees as possible...even if it means a higher interest rate.