In this article we answer the question “does refinancing make a difference?” More importantly, we illustrate how much of a difference it can make. We will use a physical therapist (we will call her Rachel) who recently graduated with her D.P.T. as an example.

Rachel has a $50,000 private loan that has an interest rate of 7.0% and a ten-year term. Her monthly payments are $580.54 per month. Over the life of her loan she will pay $69,665.09.

The finance product Rachel is looking to refinance into has a 5.5% rate and a ten year term. Her monthly payment is $542.63. At first glance you may think to yourself, “That’s only $37.91 per month, that’s nothing.” However, let’s take a deeper dive into the numbers.

If she were to refinance, her cumulative payments throughout the life of the new loan would be $65,115.77. That is a savings of $4,549.32. That amount by itself is enough for most people to say yes to refinancing their existing loan. However, let us take it one step further.

Let’s say Rachel is 27 years old and plans on retiring when she is 50 (a total of 23 years until she retires). We will also assume that Rachel invests her monthly savings as part of her retirement. If she were to earn 5.0% for 23 years, she would have an additional $11,261.09 in savings. If we increase the amount she earns to 8.0%, that figure increases to $19,554.

So to answer our question, yes refinancing makes sense. However, please note that there may be other factors that are specific to your personal situation that play a factor into the question of “does refinancing make a difference?” Before you refinance, consult a financial professional that can give you advice based on your situation.

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