Does Refinancing Make A Difference?

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.

As always, please share this article with your friends. It is much appreciated. If you have any questions, please don’t hesitate to contact us.  Thank you….

Related Post

Consolidate Student Loans, Is It For Me? Part 1 In this article, we tackle the question of whether to consolidate student loans or not.  We specifically detail one piece of advice that we often hear...
Public Service Loan Forgiveness – The Basics... Want personalized student loan help? Sign-up today, it's free. Free Student Loan Analysis
Income Share Agreements vs. Federal Income-Based L... We recently began accepting applications for our hybrid income share agreement trial program.  So far, the question we have been asked the most is how...
Refinance, What Does That Mean? Part 2 Does My Rate Always Drop If I Refinance Student Loans? Refinancing your student loans is always encouraged by financial "professionals."  Howeve...
Public Service Loan Forgiveness – Getting the Most... By: Edmund Lau, CFA If you are new to Public Service Loan Forgiveness (“PSLF”), please be sure to read our first and second articles in this series...

1 Comment on “Does Refinancing Make A Difference?

Leave a Reply