All My Brain Where stuff from my brain lands

February 23, 2012

How to correctly calculate break even time on a refinance – For Math Geeks

Filed under: Miscellaneous — Tags: , , , , , — Dennis @ 8:13 am

After my last post on refinancing, I found a refinance calculator on Zillow.com that compared loans the way I suggested. It has a shortfall though, it calculates break even time with the difference in your new payment compared to the difference in your old payment. This is actually quite incorrect. That number is good to show you how much money you’ll have extra in your bank account each month if you are making only the minimum payment. What if you pay extra on the mortgage though? In order to make almost any refinance the most beneficial, you need to pay extra on the new mortgage so that it doesn’t take as long as the new term of the loan to actually pay off the mortgage. i.e., you should at least pay what you were paying on your old mortgage.

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