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# Break-Even Period on Adjustable-Rate Mortgages

#### What This Calculator Does:This calculator shows the costs and benefits of paying points to reduce the rate on an ARM, and the minimum period they must hold an ARM before it makes sense to pay additional points (the "break-even period").

 Enter Loan Information Expected Years in House, Cannot Exceed Term Is This Loan for the Purchase of a Property or a Refinance? Purchase Refinance New Loan Amount  (e.g. 100000) New Loan Term, in Months  (e.g. 360) Income Tax Bracket ( e.g. 27 ) Rate of Interest on Savings  (e.g. 3.5) Interest Rate Index Current Value of ARM Interest Rate Index  ( e.g. 1.54 ) Margin That is Added to Interest Rate Index  (e.g. 2.75) First Rate Adjustment Number of Months to First Rate Adjustment  (e.g. 36) Maximum Interest Rate Change on First Rate Adjustment  (e.g. 5.0) Subsequent Rate Adjustments Duration, in Months, Between Subsequent Rate Adjustments  (e.g. 12) Maximum Interest Rate Change on Subsequent Rate Adjustments  (e.g. 2.0) Enter Interest Rate and Points Low Int RateHigh Points High Int RateLow Points Interest Rate  (e.g. 7.50) Points  (e.g. 1.5) Points Are:     Paid in Cash     Financed

DO NOT USE DOLLAR SIGNS (\$), COMMAS (,) PLUS SIGNS ( + )
OR PERCENTAGE SIGNS (%) IN ANY INPUT BOXES

This is your marginal tax rate, the rate at which each additional dollar of income will be taxed. If you pay only Federal income taxes, it is the highest tax bracket you used when you calculated your taxes. Federal tax brackets currently are: 10%, 15%, 25%, 28%, 33%, and 35%. If you also pay state and/or local income taxes, these marginal rates can be added to the Federal rate. For example, if you had to pay 25% to the IRS and 5% to the state of Pennsylvania, your tax bracket is 30%. To perform a "pre-tax" analysis enter zero (0) as the tax rate. The period cannot exceed the shortest mortgage term. The period may be stated in fractions. For example, 25 years and 1 month would be entered as 25.083, 25 years and two months would be 25.167, and 25 years and 3 months would be 25.25, etc. This affects the after-tax analysis because on a purchase transaction points are fully deductible in the first year whereas on a refinance the deduction must be spread over the life of the loan. This is the interest rate you could earn on the monies you spend during the period you are in your home. For most people, it would be the interest rate on a bank account or a money market fund. In after-tax cost comparisons, this figure is adjusted to an after-tax basis. Select the specific index used by your ARM from the ARM disclosure form. To find its current value, see the sources in Adjustable Rate Mortgage Indexes. Slide mouse over yellow box at beginning of line to close pop-up. The amount that is added to the index value on a rate adjustment date. It is shown in the ARM disclosure form. On a new loan, this is the initial rate period. On an existing loan, it is the number of months until the next rate adjustment date. This is the maximum amount that the interest rate can change on the first rate adjustment. ARMs that have initial rate periods of 5 years or longer often have larger adjustment caps on the first rate adjustment than on subsequent adjustments. After the initial rate period, the rate on most ARMs changes every year, every 6 months, or every month.