Refinance break even calculator

• Both loans are compared on the same outstanding balance, repaid in equal monthly payments at a fixed rate.
• The rate is divided by twelve to reach a monthly rate. A Canadian mortgage quoted with semi annual compounding will differ slightly; the mortgage payment page applies that convention.
• The break even point is the switching cost divided by the monthly saving. It ignores what you could have earned on that money elsewhere.
• Switching costs are paid up front out of your own money. Rolling them into the new balance would raise the payment and push the break even point out.
• A prepayment penalty on the loan you are leaving belongs in the switching cost. On a Canadian fixed rate mortgage that is usually the greater of three months of interest and an interest rate differential, which your lender calculates.
• Tax treatment is not considered. Interest on some loans is deductible in the United States, which changes the comparison.

Refinancing swaps one loan for another. The new rate lowers the payment, and the difference between the old payment and the new one accumulates every month. Set against that is a one time cost: discharge and registration fees, an appraisal, legal work, and on a mortgage broken mid term, a prepayment penalty that can run into thousands. The break even point is the month those savings finish repaying that cost.

The rule people usually apply is to refinance if you will stay past the break even point. That works when both loans run for the same length of time. It falls apart when the new loan is longer, because a longer term lowers the payment whether or not the rate improved. A refinance that resets a mortgage with eighteen years left back to twenty five will look like a large monthly saving and can still cost more interest overall.

That is why this page reports two numbers. The break even point answers the cash flow question: when does the switch stop costing me money. The interest comparison answers the total cost question: across the whole term, do I hand the lender less than I would have. A refinance that wins on one and loses on the other is a trade, not a saving, and worth naming as such before you sign.

Two things fall outside the arithmetic. Qualifying is one: a Canadian lender tests an uninsured borrower at a rate above the contract rate, so a switch that looks obvious may not be available to you. Timing is the other. Waiting for a renewal date avoids a prepayment penalty entirely, which often matters more than a quarter point on the rate.