How do you calculate the mortgage breakeven point?

The breakeven point is found by comparing the cumulative cost of a fixed-rate mortgage against a variable rate that increases at defined intervals. It identifies the month where total interest paid on both options equalizes.

What is an interest rate sensitivity test?

An interest rate sensitivity test models how vulnerable a loan's profitability is to interest rate hikes. It helps property investors understand how fast rates must rise before a variable tracker becomes more expensive than a fixed-rate lock-in.

Interest Rate Sensitivity Calculator

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FAQ

Frequently Asked Questions

What is the Interest Rate Sensitivity Calculator?
This tool is a decision-support model designed for investors who are unsure whether to choose a lower variable rate or a higher fixed mortgage. It estimates the “Financial Safety Window”—the exact month and interest rate level where a lower starting rate would eventually result in a financial loss compared to a fixed rate.

How does it calculate the “Breakeven” point? The calculator models the cumulative interest paid on a fixed rate against a projected “stepped” variable rate. Even when your monthly payment becomes more expensive than the fixed rate (the Tipping Point), you remain “in profit” until your initial savings are fully exhausted. This tool identifies that specific month of exhaustion (the Breakeven Point).

Why do the results differ for Interest-Only vs. Repayment loans? On an Interest-Only basis, rate hikes apply to the full original loan amount for the entire duration, which typically causes the savings buffer to erode faster. On a Repayment basis, the gradually reducing loan balance provides a slight cushion against rising rates, often extending your safety window.

How should I use these results for my strategy? Use this to “Stress Test” your portfolio. If the breakeven point is at Month 48, but you plan to sell the property or refinance in Month 24, the variable rate may be mathematically superior. If the breakeven is Month 18 and you plan to hold for 5 years, the security of a long-term fixed rate is likely the safer choice.