Understanding Break-Even Points in Refinancing Mortgages

Refinancing a mortgage involves calculating the break-even point to determine if it makes financial sense. This process requires assessing the current interest rate compared to the new rate and analyzing how long it will take to recoup the closing costs through interest savings. For instance, if refinancing allows for a drop from 7% to 6%, it’s essential to evaluate how much interest will be saved monthly and over time to justify the decision. If one plans to remain in the house long enough, say 48 months or more, it typically supports the case for refinancing.