Refinance Benefit Analysis

Why break-even alone is the wrong test

The consumer framing of a refinance — divide the closing costs by the monthly saving and see how many months it takes to recover — answers a narrow question well and a commercial question badly. It ignores two things that dominate the outcome on income property, and treats cash-out proceeds as savings when they are borrowed.

• Amortization resets. A lower rate on a fresh thirty-year schedule can raise total interest paid even while lowering the monthly payment. The payment falls; the debt lasts longer.
• Equity accrues at different speeds. Two loans with the same payment can retire principal at very different rates. Over a projection period, that difference in balance is real money and belongs in the comparison.

This tool projects both loans across the new loan's term and nets three components into a single figure: the cash flow difference, the equity differential from the two amortization paths, and net proceeds after costs. That total is the honest answer to whether the refinance leaves you better off.

Costs, and the choice of how to pay them

Closing costs on a commercial refinance are rarely one number. Prepayment penalties, lender fees, broker fees, appraisal, title and legal all behave differently: some scale with the loan and some do not, which is why they are entered separately here rather than as a single percentage.

Rolling costs in versus paying at closing

Rolling costs into the loan preserves cash and increases the balance you pay interest on for the whole term; paying at closing does the reverse. The Sync control sizes the new loan to cover the existing balance plus the costs, rounded up to the nearest $10,000, which is what a lender will quote when you ask to roll them in. Type a smaller loan amount to model paying them at closing: the difference shows as cash to close.

What is not modeled

The prepayment penalty is a single figure here; how a yield maintenance or defeasance number is built is deal-specific enough that a general calculator would mislead, so enter the payoff quote your servicer gives you. Tax treatment of points and prepayment penalties is also excluded — ask your accountant, because it can reverse a marginal decision. The net benefit is not discounted for time value; if your hurdle rate is high, discount the cash flow line yourself.

Reading the result, and the cases it does not cover

A true net benefit above zero means the projection favors refinancing across the new loan's term. It is not a recommendation, and three things sit outside the arithmetic that can reverse it.

The holding period is the hidden assumption

Every figure here projects across the full new term. Sell or refinance again before then and the comparison changes materially: costs are paid up front while the benefit accrues monthly, so a shorter hold weights the costs more heavily. If you expect to be out within a few years, compare the break-even period against your actual horizon rather than against the term.

Rate risk cuts both ways

Refinancing from a fixed rate into a shorter fixed term converts a known cost into an unknown one at maturity. The projection assumes the new loan runs to term at its stated rate, which is true — but at the end of that term you face a balloon at whatever rates then prevail. A refinance that improves the next five years and replaces a ten-year certainty with a five-year one is not a straightforward win.

What a lender will re-underwrite

A refinance is a new loan. The appraisal governs rather than a purchase price, the coverage test runs against current income rather than the income at acquisition, and the proceeds you model here are the ceiling those tests allow rather than the amount that will fund. On assets whose income has softened since the original loan, that gap is the entire story.