Cost of capital
What is this money really costing me?
2 minute read
The rate is only part of the cost. Fees, points, closing costs, insurance requirements and how long you actually hold the loan all change the real number.
A low rate with high fees on a loan you keep for two years can cost more than a higher rate with no fees. Break-even is the honest comparison: how long until the savings pay for the cost of getting them.
Also count the cost of capital you already have. Cash you spend is not free — it is the return, and the safety, you gave up.
Mini tool
Break-even on a refinance or a fee
How long the savings take to pay for the cost of getting them.
Why this matters
Comparing rates alone is how people pick the more expensive option and feel good about it.
What to do with this
- Ask for total cost to obtain the loan, not just the rate.
- Divide that cost by the monthly saving to get your break-even in months, then compare it to how long you will keep the loan.
Want this applied to your own numbers?
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