With the interest rates we've been experiencing for the past year or so, it may seem like there is no end in sight to historically low rates. Refinancing can be a great way to save money. It can also be a great way to get yourself into financial trouble.
Your breakeven period is one of the most important considerations in a refinance. To determine your breakeven period, you need to look at the monthly savings you'll create by refinancing and the total cost to refinance your loan. Let's say that by refinancing, you'll save $200 a month, and that the cost to refinance is $4,800. To determine your breakeven period, divide your refinance cost by your monthly savings. In this example, the breakeven period would be 24 months, or two years.
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