I have been considering refinancing my home and I'm trying to make sure I haven't missed something. There are two ways I have been trying to calculate how many months it would take to break even on the refinance. My wife and I are considering moving back home, but I’m taking some accounting courses here and we both just started new jobs. We’d like to stay here for at least one more year. We’re really not sure if we would stay longer than that I would entirely depend on our job situation, if we have children etc.

Here are the details of the loans.

House loan 145,000 at 5%, 30 year mortgage.

New loan at 137,360 for 3.25 – 15 year mortgage.

(137,360) (.0175) = 2403 per year saved in interest costs

Closing costs between inspection, title search etc. 3374

Basically 16 months and I would break even.

Alternative projections.

Current Loan 15 yr loan

Principal 201 593

Interest 589 372

Total 790 965

12months Principal payment 2412 7116

I my monthly payment per month will be 150 per month higher totaling 1800

7116

- 1800 because this isn’t really savings, just more money out of my pocket.

- 2412 because this is the principal I was paying down before.

= 2904 additional yearly principal payment

3374 /2904 = 1.16 = 14 months to break even point.

Which way is more valid?

When I started this post I found an error that had made the difference I was considering much bigger. Now that it is so similar, its kind of mute point. If anyone has further suggestions of a different way of looking at it I would be interested to hear it.