Does it make sense for you to refinance some or all of your loans? As with many things – it depends. Rather than make a quick decision, consider how it will impact your finances in the long term. When you have all the facts, you can make the best decision.
What does refinancing entail?
In order to refinance, you close your old loan and take out a new one. There are several times it may make sense to do this:
- Interest rates have fallen
- Your credit rating has improved, which will allow you to get a loan with more favorable terms
- If you refinance a home, you might be able to cash out some of the equity, which could be useful if you need the money.
- It may allow you to consolidate your debt
Depending on your situation and market factors such as interest rates, it could be a good time to refinance your home. It might also make sense to refinance other long-term debt, such as your car loan or student loans.
Refinancing your home loan
Since most people have either a 15-year or 30-year mortgage, the timeframe for paying off a mortgage is long enough that potential savings from refinancing could be quite large. If interest rates are lower now than they were when you took out the original mortgage, depending on the remaining time left on loan, it may save you quite a bit of money to refinance. This is particularly true if your credit rating has improved since you took out the loan, as the rate you will get is partly based on your credit score.
Another way to use refinancing to lower the interest you pay on a loan— go for a shorter term. For example, let’s say you originally took out a 30-year loan because you could only afford the lower monthly payments. Now, however, your income has increased, and you can afford a 15-year loan, which has a higher monthly payment. However, when you pay off the 15-year loan, you will spend a lot less on interest payments.
Refinancing an Auto Loan
The stakes are not as high with auto loans as the terms are shorter, and the size of the loan is smaller as well. Nevertheless, if interest rates have dropped or your credit rating has substantially improved, it may be worth it to get an auto loan. One other factor to consider – has your car held its value? If it’s been through an accident or has a lot of mileage on it, then you won’t find a good deal on a refinance.
Refinancing Student Loans
As per the experts at SoFi, “Refinancing is a great solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans.” Depending on the type of student loan you have, getting it refinanced may be more complex than refinancing other types of debt. The reason is that they may be government-issued loans. However, it is possible to refinance these loans through private institutions as well.
To see if it makes sense to do a student loan refinance, do proper researchi. Right now, rates are low, so you might be able to save a substantial amount on your student loans, including government-issued loans, if you refinance before they go up. SoFi also helps by charging you zero interest until August and no payments until October.