refinance-breakeven

Refinance Breakeven Skill

"Lower monthly payment" and "saves money" are different claims, and lenders profit from the confusion. This skill computes when a refinance genuinely breaks even — and names the two standard ways the simple math lies: the term reset that trades a lower payment for more total interest, and the cash-out that relabels borrowing as saving.

What This Skill Produces

• The breakeven analysis — payment delta, upfront costs, the month cumulative savings pass them
• Both interest totals — keep vs refi, side by side, costs included
• The honest verdict — refinance / don't / refinance-but-shorter-term, with the reason

Required Inputs

Ask for these if not provided:

• Current loan: remaining balance, rate, months left
• The offer: rate, term, closing costs, points (if any)
• The horizon: how long the user realistically expects to keep this home/loan — breakeven beyond the horizon is a loss dressed as a saving
• Cash-out? — if the refi increases the balance, say so; the analysis changes character

Programmatic Helper

python3 scripts/refinance_breakeven.py --balance 380000 --rate 6.9 --months-left 336 \
    --new-rate 5.6 --new-term 360 --closing 6500
python3 scripts/refinance_breakeven.py --json-input refi.json --json

Standard amortization, simple-savings breakeven (cumulative payment delta vs upfront costs). The script prints the term-reset warning itself when the new term extends the payoff date. Not modeled — and say so: reinvestment of savings, tax deductibility, ARM resets.

Framework: When Breakeven Math Lies

| The lie | The tell | The honest comparison |

|---|---|---|

| Term reset | 26 years left → "new 30-year loan" | Total interest both paths (the script prints it) — or price the refi at the same remaining term |

| Cash-out gravity | "…and take $40k out while rates are good" | That's a new loan decision; analyze it separately at its own rate |

| Points seduction | Lower rate via points | Points go into upfront cost; breakeven moves — recompute, don't eyeball |

| Horizon blindness | Breakeven month 38, moving in ~2 years | If sell-month < breakeven month, the refi is a donation to the lender |

Output Format

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Refinance Analysis: [loan]

The Numbers

[Script output: payments, delta, breakeven month, both interest totals, term-reset warning if applicable]

The Verdict

[Refinance / Don't / Refinance at a shorter term] — because [breakeven vs horizon, and the interest-total comparison in one sentence].

What Would Change the Answer

[Rate threshold where the verdict flips; the horizon below which it flips; whether a same-term refi dominates the offered one.]

Educational model, not financial advice — verify with a licensed professional before acting on it.

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Quality Checks

• [ ] Breakeven month is compared against the user's stated horizon, not shown in isolation
• [ ] Total interest on both paths appears whenever the term changes
• [ ] Points are inside the upfront cost, not footnoted
• [ ] The verdict names its reason in one sentence
• [ ] The disclaimer line appears in the artifact

Anti-Patterns

• [ ] Do not equate a lower payment with saving money — the term reset is the whole trap
• [ ] Do not fold a cash-out into the breakeven — it's a separate borrowing decision
• [ ] Do not report a breakeven month without the sell-before-month-N warning
• [ ] Do not present the model's output without what it doesn't model