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Breaking Your Mortgage – Calculate Your Costs

September 23, 2011

Before you consider breaking or refinancing your existing mortgage, it’s important for you to determine the break-even point ##

The break-even point represents how soon the cost of the refinance will be recaptured through lower monthly payments.

The answer to this question depends on multiple factors. These factors include the following:

· your current interest rate

· your new potential interest rate

· closing costs, and

· how long you plan to stay in your home.

While your break-even point is easy enough to calculate, other factors may also influence your decision.

Plus, once you decide you it’s worth it to you to break your mortgage, you need to work with your mortgage advisor to determine what type of mortgage product is right for you.

While there is no rule of thumb for the maximum payback period (break-even point) that makes sense for most borrowers, three years or fewer typically is considered reasonable if you intend to keep your mortgage that long. If you can get a true zero-cost refinance, your break-even point will occur immediately. In that case, it may make sense to refinance your mortgage even if your interest rate is lowered by just an eighth of a percentage point, because you’ll save money every month, though the amount may be small.

A true no-cost refinance means you pay no money upfront and neither your loan amount nor your interest rate is increased to build any costs into your new loan.

If you are considering breaking your mortgage, please feel free to contact me and I can help you sort through what the costs are for breaking your mortgage by providing you with a quick ‘n easy break-even analysis to determine if refinancing your mortgage is a sound financial decision.