Refinancing means replacing your current loan with a new one—ideally with better terms. Done right, it saves thousands. Done wrong, it costs you.
What You Can Refinance
| Loan Type | Typical Savings | Considerations |
|---|---|---|
| $100-500/month | 2-5% | |
| Student loans | Lower rate | May lose federal benefits |
| Auto loan | $50-150/month | Car must have equity |
| Credit card debt | 15%+ → 0-8% | Balance transfer or personal loan |
When Refinancing Makes Sense
The Simple Math
Old loan: $20,000 at 8% = $400/month New loan: $20,000 at 5% = $375/month Monthly savings: $25 Break-even on $1,000 closing costs: 40 months
Pro Tip
If you'll stay in the loan longer than break-even, refinancing wins. If you'll pay it off sooner, maybe not.
Mortgage Refinancing
When to Consider
- Rates dropped 0.5-1%+ since your loan
- Your improved significantly
- You want to switch loan types (ARM to fixed)
- You need cash (cash-out refi—be careful)
Costs to Watch
| Cost | Typical Amount |
|---|---|
| Origination fee | 0.5-1% of loan |
| Appraisal | $300-500 |
| Title insurance | $500-1,000 |
| Total closing | 2-5% of loan |
Watch Out
Don't refinance every time rates dip. Closing costs add up, and restarting a 30-year clock means more total interest.
Student Loan Refinancing
Potential Benefits
- Lower (if credit improved)
- Single payment (consolidation)
- Lower monthly payment
What You Give Up (Federal Loans)
- Income-driven repayment plans
- Public Service Loan Forgiveness
- Forbearance options
- Potential future forgiveness programs
Avoid This
Don't refinance federal student loans unless you're certain you won't need these protections. You can't undo it.
Credit Card Balance Transfers
Refinancing credit card through balance transfers:
How it works:
- Apply for 0% intro APR card
- Transfer high-interest balance
- Pay aggressively during 0% period
- Avoid new charges
Watch out for:
- Balance transfer fees (3-5%)
- 0% period ending (rates jump to 20%+)
- Making new purchases on the card
Do This
Balance transfer only if:
- You'll pay it off during the 0% period
- You won't add new debt
- The fee is worth the interest savings
The Refinancing Decision Framework
Step 1: Calculate potential savings
- Monthly payment difference × months remaining
Step 2: Calculate total costs
- Closing costs, fees, time spent
Step 3: Calculate break-even point
- Costs ÷ monthly savings = months to break even
Step 4: Compare to your timeline
- Will you have this debt past break-even?
Red Flags
Watch Out
Signs refinancing might be a trap:
- Extending your loan term significantly
- Rolling closing costs into loan
- Taking cash out for non-essentials
- Refinancing repeatedly
- Monthly payment drops but total cost increases
Quick Win
If you have debt over 10% interest, explore refinancing options now. A personal loan at 8% beats a credit card at 22%.