5. You have a $200,000, 30-year fixed-rate mortgage locked in at 6% interest. You have seen that loans are currently available at 5% and would like to refinance your mortgage at the lower rate, though you aren’t sure it would be beneficial. The fees for the new loan would be $2,500, paid in cash at closing. Is refinancing a good idea?

Current monthly mortgage payment $1,199 Subtract proposed new monthly payment ($1,074)

Equals monthly savings $125 New loan’s total fees and closing costs $2,500 Divide total costs by monthly savings $2,500/$125 Months to recover refinancing costs 20 months Based on these calculations, it would be beneficial to refinance only if you plan to stay in the home for more than 20 months.

1. Where is the break-even point if the fixed-rate mortgage drops to 4% with a new monthly payment of $955/month?