# Refinance Break Even Point: the Definition, Calculation, and Why You Should Do It

Break even point, what is it actually? If you are interested in business, property investment, home loans, mortgages, and the like, it is very important to learn the terms first. Why? Sure, you may need to calculate your own profits by using those terms.

One of the terms often used in the business is the break even point. This term is even a very essential element for anyone who wants to build up a business for the long term.

Yes, the break-even point or you can simply short it into BEP is the benchmark to determine whether your business will gain enough profit or not. Besides, it also plays an important role in some business actions like refinancing. So, here is the definition of BEP and how it works in refinance.

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## The Definition of Break Even Point (BEP)

In the world of business, loans, and accounting break even point (BEP) is a condition when the amount of spending for the production cost equals the amount of income found from sales. In other words, the total profit or loss is in the 0-point position.

Of course, it means that you will not get any profit as well as there is no loss at all when in the position. Although it seems not a big deal, if you see it from a business-wise perspective, this moment should be taken to analyze some matters.

Yes, once BEP happens, it must be calculated as the main reference for the unit number projection to produce, the budget to spend, and the selling price to determine so that later, at least, the breakeven point is reachable and the business will not experience any loss.

Experiencing BEP is considered a good chance for the company to make some calculations mentioned above for sure. But in any business, it is much better if it is profitable, isn’t it?

Therefore, since the company starts to sell its products or services, it is recommended to calculate its BEP value first. BEP then becomes the lowest point to be achieved by the company. If it can avoid BEP and gain profit, it will be better for the company’s development and longevity.

Furthermore, common people should also use the knowledge of BEP to refinance or take new mortgages when making loans for property investments. The calculation made using the BEP during the transaction enables them to analyze the right time to buy investment products and consider the additional costs in loans.

## The Definition of Refinance Break Even Point

Well, you have learned about the definition of break-even point anyway. Now, let’s talk about how it can be refinanced. Only in the previous paragraph, you have just read that BEP is used also by common people, or maybe property investors, mostly to make loans for properties.

As information, not only investors, companies who work in the area of investments and home loans, and common people who want to credit their properties also use this method for refinancing purposes.

So, what is the refinance break-even point? The refinance break-even point in the home investment and loan area is the most reasonable point financially to refinance and take new mortgage requirements.

Aside from using the refinance break even calculator, it is indeed very important for you to calculate and use this point to change your financial plans no matter what their purposes.

Yes, even if you are one of those people who want to look for loans for homes, it is advised to always calculate the BEP when comparing one loan to another. It brings you different results in terms of the cost, duration, and other things related to the mortgage. Sure, finally, choose one of them the most profitable for you.

## How to Calculate the Refinance Break Even Point

Along with the development of technology, there are many easy ways to make complex things like mortgage and financial calculations easier. One of them is by using a digital calculator that is specially designed to calculate the break-even point for refinancing.

The calculator may ask you for some detailed information including what your main purpose to do refinancing is, how much the remaining money to have to pay your mortgage, and how much money to have for the equity.

The calculator works by estimating your credit and where you should live. Besides, its feature also shares the ZIP code to enable you to estimate costs for taxes and insurance as well as it encourages you to talk to someone with a license about this matter based on the state where you live.

Of course, the calculator is designed to help you calculate almost anything related to refinancing for a mortgage. However, there are some most important points to use when refinancing and you must calculate them first in the mortgage points calculator break even. Here they are.

• The Total the Refinance Cost

Something that commonly comes to someone’s mind when refinancing is how it will bring effects their regular spending. Yes, because refinancing is more than how you re-plan the finance but there are additional costs to pay.

The most common type of additional costs in the loan is the closing cost. The closing cost is determined by the loan estimation given by the lender. This is how you can compare all the lenders coming to you.

Interestingly, some lenders may offer you loans without the closing cost. But it doesn’t mean there is no closing cost at all. The cost is added to your regular installments. Those lenders can even make the cost higher to gain their own benefits.

That’s why considering those matters is important when calculating the refinance cost. You should not be easily tricked by such a thing that can be disadvantageous for you.

• Monthly Payment Saving

The next point to calculate using the mortgage calculator is the remaining money you possibly save from the payment. To do it, you can just take a look at the primary payment amount and the interest mentioned in your current mortgage report before you cut it for taxes and insurance.

After finding the amount, subtract it from the principal payment and interests based on the estimation of the new loan. The amount you will find is your monthly saving. In addition, you can also calculate how many interests you can save every month to add to your savings.

• Break Even Point Determination

After finding the amounts of the total Refinance Cost and the monthly payment saving, you can now calculate the break-even point with the mortgage break even calculator. It is by dividing the closing cost and the amount of money you can save per month. The result is the time duration you need to achieve the break-even point.

For example, if you can save \$50 per month using the refinancing method but the loan has a closing cost of \$5,000, it will be 100 months or almost 8 years to reach the break-even point.

Sure, if you live in a home from loans more than the break-even point, it means you are successfully saving your money. There is no obligation for you to refinance your home loan. Well, you can still do that if there is a better plan though.

On the other hand, if the break-even point result is fewer than your duration of living there, it means you really need to consider refinancing. It is for a better financial condition of your household for sure.

## Benefits of Refinance Break Even Points

Break-even points have so many benefits when it comes to businesses and investments. The result of the calculation enables you to make the best decisions about what you and your business will do next. Of course, there is one main goal to reach by determining the BEP, it is to improve the profit.

But how about the benefits of Refinance Break Even Point for the home loan and mortgage issues? Why do you need to puzzle yourself doing such a complicated calculation?

Just like break-even points in business, the calculation of home loans and mortgages also brings benefits that you should not underestimate. Moreover, the main goal of doing the calculation is to improve your financial condition. So, in detail, the refinance break-even points have the following benefits.

• Help You in the Refinancing Decision

You just agree that a decision to refinance your home loan is not something easy to take. Refinancing can mean changing the entire financial plan and it must spend much of your priceless time also.

That’s why you really need to do the break-even point first using the mortgage refinance break even calculator. At least, you will get the most reasonable reason why you should refinance the loan and mortgage. Furthermore, the plan to refinance can be canceled also when it indicates that there are profits to get.

• Give Better Insights in Property Loans

Nobody wants to be burdened by loans for sure. If they have extra money to buy properties cash, they must do it. You must agree that loans are actually burdening with all of their interests and others.

However, this is something you cannot avoid mainly if you don’t have that extra money. It even helps you manage your money as the installment, ideally, should be far below your monthly income.

That’s why, even if you think there is no problem at all with the loan to install currently, it is not bad to calculate the break-even point. There will be new and better insights into property loans you have. Moreover, if it is found that the payment duration or the regular installment seems not fair to you, it can be a good chance for refinancing.

• A Good Lesson for the Next Investment

In this modern era, it is a very good decision to save your money for investment. And it has been known widely that property investment is one of the best as the price of the product continuously increases.

So, if you have made a loan now for one property, it is not bad to do the same thing later for another one. The property is not always to live in. You can rent it for an extra income.

The break even point for refinancing a home can be done now as a preview for the next investment. Okay, you may have done with the current loan and not be interested in refinancing. But at least, you can get a good lesson to get more profits and minimize the risk in case you want to make another loan for another property.

## Frequently Asked Questions

• What is the break even point when refinancing?

The break-even point in refinancing is a term in the area of mortgage and home loans. It is a calculation that tells you how long it takes to finish a loan and how much they must pay including the closing cost.

It is often found that a homeowner must pay more than he or she should. So, if the break-even point they calculate says so, they can refinance their loans by considering some other matters including extra costs to pay.

• What is the break even point in mortgage?

Generally, the definition of break-even point is the same in all areas of finance. In the mortgage issue, the break-even point is when the money to spend through the loan is the same as the value of the property. If it is not, you can choose to refinance it. That’s why it is so-called the refinance break-even point.

Doing a refinance break-even point must be through some considerations and accurate calculation. That’s why it is very important to use the refinance break-even point calculator first before coming to a decision for refinancing.

• How to calculate break even point mortgage?

It is by using the break-even point mortgage calculator available on some mortgage websites. Besides, you can also download the app to install on the smartphone.

There are 3 main points to calculate to measure the break-even point. They are the total of the Refinance Cost, the monthly payment saving, and the break-even point itself. The total refinance cost and monthly payment savings must be calculated first and then the results are used for finding the break-even point.