How to Refinance a Loan to Save Money (and When Not To) 2026

Person comparing a current loan statement with a refinance offer using a calculator and a notebook

Last reviewed: October 1, 2026

Short answer: Refinancing means taking out a new loan to pay off and replace an existing one. It saves money only when the total cost of the new loan, including every fee, is lower than the cost of keeping the old loan for the time you will actually hold it. The quickest test is the break-even point: divide the total cost of refinancing by the amount you save each month. If you will keep the loan longer than that number of months, and you have not stretched the term so far that total interest rises, refinancing is likely to save money.

Refinancing can cost you money when you plan to move or sell soon, when fees are high, when your current loan has a prepayment penalty, when you owe more than the home or car is worth, or when a longer term turns a lower payment into more total interest. One case needs special care: refinancing federal student loans into a private loan permanently gives up federal protections such as income-driven repayment and loan forgiveness.

This guide covers mortgages, auto loans, personal loans and student loans. It draws on the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), the Federal Reserve, Freddie Mac, FICO, the UK Financial Conduct Authority (FCA), the UK government and the Financial Consumer Agency of Canada. We do not recommend any lender, and we do not quote rates on offer today, because they change constantly.

This article is general information, not financial advice. Rules, fees and loan terms differ by country, state, lender and loan type.

In this guide

What refinancing is, and how it differs from consolidation and modification
When refinancing saves money, and when it does not
The break-even calculation, with a worked example
Refinancing a mortgage
Refinancing an auto loan
Refinancing a personal loan
Refinancing student loans
How lenders decide: credit score, DTI, LTV and income
Rate shopping and the credit-inquiry shopping window
Fixed vs variable rates
Costs and fees
Documents you will need
How to refinance, step by step
UK readers: remortgaging
A short note for Canadian readers
Scams and red flags
Common refinancing mistakes
Refinancing checklist
FAQ
Bottom line
Sources

What refinancing is, and how it differs from consolidation and modification

Refinancing replaces one loan with a new loan. The new lender, or your current one, pays off the old debt in full, and you repay the new loan under new terms: a new rate, a new term, a new payment and usually new fees.

The CFPB describes mortgage refinancing in these terms: you pay off your current mortgage with money from a new mortgage. The same idea applies to car loans, personal loans and student loans. A refinance is a new credit transaction, which is why your credit is checked again and you receive fresh disclosures.

People refinance for four main reasons:

A lower interest rate. Market rates may have fallen, or your credit may have improved.
A different monthly payment. A longer term lowers it. A shorter term raises it but clears the debt sooner.
A different type of rate, such as moving from adjustable to fixed.
Extra borrowing. A cash-out refinance turns home equity into cash and a larger loan.

Refinancing vs debt consolidation

Debt consolidation combines several debts into one payment. Consolidation is often done by refinancing, but the goal differs: refinancing is about better terms on a debt, while consolidation is about having fewer debts to manage.

The CFPB warns that a lower consolidated payment may come from a longer repayment period, so the total cost can be higher. It also notes that if debt built up because spending exceeds income, a consolidation loan probably will not help unless the spending changes. See our guide to debt consolidation options and costs.

Refinancing vs loan modification

A loan modification changes the terms of the loan you already have. It does not replace it. The CFPB defines a mortgage loan modification as a change in your loan terms and calls it a type of loss mitigation, meaning it is designed for borrowers who are struggling. It may extend the term, reduce the rate, or forbear or reduce the principal.

Refinancing is something you shop for when your finances are sound. Modification is something you ask your current servicer for when you are in difficulty. If you are behind on payments, talk to your servicer and a HUD-approved housing counselor first.

Feature	Refinancing	Debt consolidation	Loan modification
What happens	A new loan replaces the old loan	Several debts are combined into one	The existing loan's terms are changed
Main purpose	Better rate, different term or cash out	One payment, sometimes a lower rate	An affordable payment during hardship
Who you deal with	Any lender you choose	A new lender or card issuer	Your current servicer only
Approval	Full application and credit check	Usually a credit check	Based on hardship
Typical costs	Closing costs or origination fees	Origination or transfer fees	Usually no closing costs

When refinancing saves money, and when it does not

Refinancing saves money when the interest you avoid is larger than the fees you pay, over the period you will really keep the loan. It loses money when fees outweigh savings, when you leave the loan before you break even, or when a longer term adds more interest than the lower rate removes.

When refinancing often helps

Rates are clearly lower than your current rate. Freddie Mac lists this as the first reason homeowners refinance.
Your credit has improved since you first borrowed.
You want a shorter term. The CFPB notes this can mean paying less total interest, though the payment may be higher.
You want certainty, by moving from an adjustable rate to a fixed rate.
You will keep the loan well past break-even.

When refinancing often costs more

The CFPB's "Should I refinance?" handout lists four warning questions for homeowners. If any applies, refinancing might not make sense:

Are you planning to move soon? You might not have time to recoup the cost.
Has the value of your home fallen? A better loan may be harder to find.
Has your credit standing declined? Your score affects the cost of the loan.
Does your mortgage have a prepayment penalty? You must pay it if you refinance.

The Federal Reserve's consumer guide to refinancing adds a fifth: you have had your loan for a long time. In the later years of a mortgage, more of each payment goes to principal. Refinancing restarts the schedule, so payments are mostly interest again.

Factor	More likely to save money	Less likely to save money
Rate gap	New rate is clearly lower	Only slightly lower
Time you will keep the loan	Well beyond break-even	You may sell or pay off before break-even
Fees	Low, or quickly recovered	High costs or a prepayment penalty
Term	Same as or shorter than the time left	Much longer than the time left
Equity	You owe clearly less than the asset is worth	You owe close to or more than its value
Credit since you borrowed	Improved	Declined
Borrower protections	None lost	Federal student loan benefits given up

A lower payment is not the same as a saving

A lender can almost always offer a lower payment by stretching the term. The CFPB puts it plainly: a new loan comes with a new term, which could be longer, and that could mean a lower monthly payment but paying more money in total. Always compare two numbers: the monthly payment, and the total you will pay from today until the debt is gone.

The break-even calculation, with a worked example

The break-even point is the number of months it takes for your monthly savings to repay the cost of refinancing. The formula is total refinancing costs divided by monthly savings. Keep the loan longer than that and you come out ahead on cash flow. Leave sooner and you lose money.

Freddie Mac describes the same payback calculation. The Federal Reserve's guide gives an example in which costs of $2,500 divided by monthly savings of $91 produce a break-even of about 27 months.

Step by step

Find your current payment for principal and interest only. Taxes and insurance do not change when you refinance.
Find the new payment from the lender's written offer, and subtract to get the monthly saving.
Add up every cost: closing costs or origination fee, points and any prepayment penalty on the old loan.
Divide the total cost by the monthly saving.
Compare total interest on the old and new loans from today to the final payment. This catches cases where break-even looks good but a longer term costs more.

Worked example (illustrative only)

This example is fictional. The borrower, rates and costs are invented to show the arithmetic. They are not real offers or a forecast. Payments are principal and interest only, rounded to the cent.

Maya owes $240,000 on her mortgage with exactly 25 years (300 months) left. Her rate is 7.00%, so her payment is $1,696.27. A lender offers 6.00% with closing costs of $7,200, which is 3% of the balance. She compares three ways to take the new rate.

Illustrative figures	Keep current loan	Option A: new 30-year loan	Option B: new 25-year loan	Option C: 30-year loan, costs rolled in
Loan balance	$240,000	$240,000	$240,000	$247,200
Interest rate	7.00%	6.00%	6.00%	6.00%
Months remaining	300	360	300	360
Monthly payment	$1,696.27	$1,438.92	$1,546.32	$1,482.09
Monthly saving	None	$257.35	$149.95	$214.18
Cash paid at closing	$0	$7,200	$7,200	$0
Total of remaining payments	$508,881.00	$518,011.20	$463,896.00	$533,552.40
Total interest from today	$268,881.00	$278,011.20	$223,896.00	$286,352.40

Reading the results

Option A, a new 30-year loan. The payment falls by $257.35. Break-even is $7,200 divided by $257.35, which is about 28 months. That looks attractive, but Maya has added five years of payments. Total interest rises from $268,881.00 to $278,011.20, an increase of $9,130.20. Add the $7,200 closing costs and, kept to the end, Option A costs $16,330.20 more than doing nothing.

Option B, a new 25-year loan. Matching the time left on her old loan, the payment falls by $149.95. Break-even is $7,200 divided by $149.95, which is about 48 months, or four years. Total interest falls from $268,881.00 to $223,896.00, a saving of $44,985.00. After the $7,200 closing costs, the net saving over the life of the loan is $37,785.00. If Maya will stay in the home well beyond four years, this option truly saves money.

Option C, costs rolled into a 30-year loan. Maya pays nothing at closing, and the payment still falls by $214.18. But she owes $247,200 and pays interest on the closing costs for 30 years. Total payments rise to $533,552.40, which is $24,671.40 more than keeping her current loan.

Illustrative summary	Option A	Option B	Option C
Monthly saving	$257.35	$149.95	$214.18
Break-even on cash paid	About 28 months	About 48 months	No cash paid
Change in total interest	$9,130.20 more	$44,985.00 less	$17,471.40 more
Result if kept to the end, including costs	$16,330.20 worse	$37,785.00 better	$24,671.40 worse

What the example teaches

The shortest break-even is not always the best deal. Option A breaks even fastest and still costs more in the long run.
Match or shorten the remaining term if your goal is to pay less in total. The CFPB notes it is often possible to choose a custom term, such as 22 years instead of 30.
Break-even measures cash flow, not total cost. Use the total-interest comparison to check whether the loan is actually cheaper.
Your time horizon decides. If Maya expected to sell within three years, she would not recover the $7,200 under Option B and should keep her current loan.

Refinancing a mortgage

A mortgage refinance replaces your home loan with a new one, usually to lower the rate, change the term, switch rate type or take cash out. It is the most expensive kind of refinance because you pay closing costs again. Freddie Mac says to expect to spend about 3% to 6% of your loan principal.

Rate-and-term vs cash-out

A rate-and-term refinance changes the rate, the term or both without materially increasing what you owe. This is the kind most likely to save money.

A cash-out refinance replaces your mortgage with a larger one and pays you the difference in cash. The Federal Reserve's guide points out the trade-off: borrowing against your equity reduces the share of the home you own. If you use the cash to pay off cards, you convert unsecured debt into debt secured on your house. The CFPB warns that if you cannot repay debt secured on your home, you could lose it to foreclosure.

Closing costs

Freddie Mac lists government recording costs, appraisal fees, credit report fees, lender origination fees, title services, tax service fees, survey fees, attorney fees and underwriting fees. Our guide to mortgage closing costs explains each one.

Be careful with "no-closing-cost" refinancing. The CFPB explains that the costs do not disappear. Either the lender charges a higher rate in return for a credit that covers them, or they are added to the loan balance, which raises your payment and reduces your equity. Option C above shows the effect.

The Loan Estimate and Closing Disclosure

Loan Estimate. The CFPB describes it as a three-page form the lender must provide within three business days of receiving your application. It shows the estimated rate, monthly payment and total closing costs, and whether the loan has a prepayment penalty or balloon payment.
Closing Disclosure. A five-page form with the final loan terms, projected payments and closing costs. The lender must give it to you at least three business days before closing. Compare it line by line with your Loan Estimate.

The CFPB says the best way to tell whether an offer is competitive is to compare Loan Estimates from several lenders for the same kind of loan. Look at the annual percentage rate (APR), which reflects fees as well as interest, and the total interest percentage.

Points and lender credits

Points let you pay more at closing for a lower rate. The CFPB explains that one point equals one percent of the loan amount, so one point on a $100,000 loan costs $1,000. Lender credits work the other way: you accept a higher rate and the lender pays toward your closing costs.

Points suit people who will keep the loan for a long time. Credits suit people who are short of cash or expect to move soon. Points have their own break-even: divide their cost by the monthly saving they produce.

Private mortgage insurance (PMI)

The CFPB explains that on a conventional loan you may have to pay PMI when you refinance if your equity is less than 20 percent of the home's value. If your home has fallen in value, a refinance could add PMI you do not pay today.

Before refinancing just to drop PMI, check whether you can cancel it on your current loan. The CFPB says you can ask your servicer to cancel PMI once your balance reaches 80 percent of the home's original value, subject to conditions, and that it must end automatically when the balance is scheduled to reach 78 percent if you are current. Cancelling costs far less than refinancing.

Resetting the term

Every refinance starts a new schedule. If you are eight years into a 30-year mortgage and take a new 30-year loan, you will pay for 38 years in total, and you return to the interest-heavy early years. Ask for a term no longer than the time you have left, or keep paying your old, higher amount so the extra goes to principal.

Rate locks and the right to cancel

A rate lock means your rate will not change before closing, provided you close on time and your application does not change. The CFPB says locks typically last 30, 45 or 60 days.

Federal law also gives a cooling-off period on many refinances of your main home. The CFPB explains that the right of rescission lets you cancel in writing within three business days of closing. For this purpose Saturdays count as business days. It does not apply to a mortgage used to buy the home.

Refinancing an auto loan

Refinancing a car loan can lower your rate or payment, and it usually costs far less in fees than a mortgage refinance. It works best when your credit has improved since you bought the car and the car is still worth more than you owe.

The CFPB notes that dealers can profit by offering a rate higher than the one the lender approved. If you took dealer financing without comparing offers, your rate may have room to come down.

The term trap

The CFPB is direct: a longer term may mean cheaper monthly payments but more interest over the life of the loan. Here is an illustrative example, with invented figures and no fees assumed.

Illustrative auto loan, $18,000 balance	Keep current loan	Refinance, same term	Refinance, longer term
Rate	9.00%	6.50%	6.50%
Months remaining	48	48	72
Monthly payment	$447.93	$426.87	$302.58
Total of remaining payments	$21,500.64	$20,489.76	$21,785.76
Total interest from today	$3,500.64	$2,489.76	$3,785.76
Result vs keeping the loan	None	$1,010.88 less	$285.12 more

With the same 48 months, the lower rate saves $21.06 a month and $1,010.88 in total. Stretching to 72 months cuts the payment by $145.35, but costs $285.12 more overall and adds two years of payments on an ageing car.

Negative equity

Negative equity means you owe more than the vehicle is worth. The CFPB calls this being "upside down." It makes refinancing hard, because lenders look at the loan-to-value ratio, which the CFPB defines as the loan amount divided by the vehicle's actual cash value. A ratio above 100 percent can affect both approval and the rate.

If you are upside down, the usual options are to keep paying until you have positive equity or to pay the balance down. The CFPB warns that rolling negative equity into a new loan makes that loan more expensive.

Vehicle age and mileage limits

In general terms, lenders commonly set a maximum vehicle age, a maximum mileage and a minimum remaining balance for refinancing. The limits differ from lender to lender, so ask before you apply.

Fees and penalties to check

Prepayment penalty. The CFPB explains that refinancing means prepaying the original loan in full, and you may owe a fee if your agreement has a penalty. Some states prohibit these on certain loans.
Title and registration fees for recording the new lienholder.
Add-on products. Warranties or GAP cover financed in the old loan may be cancellable for a partial refund.
Proof of payoff. Keep paying the old loan until the old lender confirms it is paid in full.

Refinancing a personal loan

Refinancing a personal loan means taking a new personal loan, usually at a lower rate, to pay off the old one. Because these loans are short and balances are modest, the fees on the new loan decide whether it is worth doing.

Origination fees

Many personal loans charge an origination fee, usually a percentage of the amount borrowed and often deducted from the money you receive. It is paid on day one and is not refunded if you repay early.

An illustrative example, with invented figures: Sam owes $12,000 at 15.00% with 36 months left. His payment is $415.98, and he will pay $14,975.28 in total. A lender offers 11.00% over 36 months with a 5% origination fee taken out of the loan. To receive $12,000 after the fee, Sam must borrow $12,631.58, of which $631.58 is the fee. The new payment is $413.54, and the total is $14,887.44.

The rate dropped by four percentage points, yet Sam saves only $2.44 a month and $87.84 over three years. The fee absorbed almost all of the benefit. With a no-fee loan at the same rate, his payment would be $392.86 and he would save $832.32 in total. Compare the APR, which includes the fee, and the total of payments.

Prepayment penalties

Check your current agreement for a prepayment penalty or early settlement charge. Many personal loans have none, but if yours does, add it to the cost side of your break-even sum.

If you are juggling several debts, our guide on how to manage multiple loans explains how to prioritize them.

Refinancing student loans

Refinancing student loans with a private lender can lower your rate if you have strong credit and steady income. But refinancing federal loans into a private loan permanently removes them from the federal system and its protections. For many borrowers that trade is not worth a lower rate.

The big warning: The CFPB states that if you refinance federal student loans with a private lender, you lose your rights under the federal student loan program, including deferment, forbearance, cancellation and affordable repayment options. It also states that this cannot be reversed.

What you give up when federal loans become private

Income-driven repayment (IDR). Federal plans base your payment on income and household size. The CFPB notes payments can be as low as zero dollars a month.
Forgiveness programs, including Public Service Loan Forgiveness and teacher loan forgiveness.
Deferment and forbearance rights. Private lenders may offer relief, but at their discretion.
Discharge on death or permanent disability. The CFPB notes that many, but not all, private lenders offer something similar.
A fixed rate. If you move to a private variable-rate loan, the CFPB warns your rate could rise above the original fixed rate.
Servicemember benefits. The CFPB notes that active-duty servicemembers may lose the interest-rate cap under the Servicemembers Civil Relief Act on loans taken out before service.

The CFPB has found that some private lenders' marketing said borrowers "may" lose federal benefits when the loss was a certainty. Read the disclosures yourself.

Federal consolidation is not private refinancing

Feature	Federal Direct Consolidation Loan	Private refinancing
Who provides it	The US Department of Education	A private lender
Which loans	Federal loans only	Private loans, federal loans or both
Interest rate	Per the CFPB, a weighted average of the existing rates, rounded up to the nearest one-eighth of a percent	Set by the lender, based on credit and income
Lowers the rate?	No	It can, if you qualify
Federal protections	Loans stay federal, though some benefits can be affected	Lost permanently for federal loans included

Even federal consolidation has trade-offs. The CFPB notes that consolidating Parent PLUS loans with other federal loans can cost access to some repayment and forgiveness options.

When private refinancing can be reasonable

The loans are already private, so there are no federal benefits to lose.
You have a secure, high income and savings, and are certain you will not use IDR or forgiveness.
You refinance only your private loans and leave federal loans untouched.

If you are unsure, keep federal loans federal. A slightly higher rate is the price of protection against job loss, illness or a change of career.

How lenders decide: credit score, DTI, LTV and income

Lenders approve and price a refinance using your credit history and score, your debt-to-income ratio, the loan-to-value ratio if the loan is secured, and your income. A refinance is a new application, so you are judged as you are today.

Credit score

The CFPB says plainly that your credit score affects the cost of your loan. A higher score usually means a lower rate. Check your reports for errors before applying. Our guides explain how a credit score is calculated and how to improve your credit score before applying for a loan.

Debt-to-income ratio (DTI)

The CFPB defines DTI as all your monthly debt payments divided by your gross monthly income. Its example: $2,000 of monthly debts divided by $6,000 of gross income gives 33 percent. The CFPB notes that different loan products and lenders have different DTI limits, so there is no single pass mark.

Loan-to-value ratio (LTV)

For a mortgage, the CFPB describes LTV as a measure comparing the amount you are financing with the appraised value of the property. Higher-LTV borrowers are seen as higher risk, tend to be offered higher rates and may need mortgage insurance. For a car, the CFPB's example is a $15,000 loan on a $20,000 vehicle, an LTV of 75 percent.

Income and employment

Lenders want evidence that your income is real, sufficient and likely to continue. A recent move to self-employment or commission income can complicate an application.

For auto loans, the CFPB also lists the type of vehicle, whether it is new or used, the loan amount and the term. And it reminds borrowers that lenders are not required to offer their best rate. Comparing offers is how you find it.

Rate shopping and the credit-inquiry shopping window

Comparing several lenders is the most effective way to cut the cost of a refinance, and it does little harm to your credit if done within a short period. Scoring models treat multiple inquiries for the same kind of loan, made close together, as one inquiry.

What the CFPB and FICO say

The CFPB states that within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry. The impact is the same no matter how many lenders you consult, as long as the last check is within 45 days of the first. For auto loans, it describes the window as generally 14 to 45 days.

FICO explains that in recent versions of its scores, hard inquiries of the same type, for student, auto or mortgage loans, within a 45-day window count as a single inquiry. In older versions, the window is 14 days. Hard inquiries stay on your report for up to two years, but FICO Scores only consider those from the last 12 months.

Keep your shopping tight. You cannot know which score version a lender uses, so gather all quotes within about 14 days.
The window names mortgage, auto and student loans. Do not assume personal loan applications are grouped the same way. Use prequalification first.

Prequalification

Many lenders let you check an estimated rate with a "soft" credit check, which does not affect your score. A prequalified rate is not a commitment. Use it to narrow the field, then apply fully to your best two or three options.

How to compare offers fairly

Ask every lender for the same amount, term and rate type.
Compare APR, total fees in dollars and the total of all payments.
Include your current lender. The Federal Reserve's guide suggests starting there, since it may reduce some fees to keep your business.
Get every offer in writing.

Fixed vs variable rates

A fixed rate stays the same for the whole loan, so your principal and interest payment never changes. A variable or adjustable rate can go up or down, so your payment can change. A variable rate often starts lower in return for you carrying that risk.

The CFPB explains that an adjustable-rate mortgage (ARM) usually has a fixed introductory period, then adjusts at regular intervals based on a market index plus a margin. Some ARMs have caps on how far the rate can move.

Question	Fixed rate	Variable or adjustable rate
Can the payment change?	No	Yes, after any introductory period
Starting rate	Often higher	Often lower
Who carries the risk of rising rates?	The lender	You
Best fit	Long holding period, tight budget	Short holding period, room in the budget

If you are refinancing for savings and safety, fixed is the simpler choice. If a variable rate tempts you, heed the CFPB's advice on ARMs: do not assume you will be able to sell or refinance before the rate changes. Ask for the highest payment the loan could reach, and go ahead only if you could afford it on your current income.

Costs and fees

Every refinance has costs, even when they are hidden in the rate or the balance. For mortgages, Freddie Mac puts the usual total at about 3% to 6% of the loan principal. Other loans cost less, but an origination fee or prepayment penalty can still wipe out the saving.

Amounts vary by lender, loan size and location, so we describe them in general terms. Your written offer is the only reliable figure.

Fee	Applies to	What it is
Origination or underwriting fee	Mortgage, personal, some auto and student loans	The lender's charge for making the loan. Often a percentage, and on personal loans often deducted from the proceeds
Discount points	Mortgage	Optional upfront payment for a lower rate. One point is one percent of the loan
Appraisal fee	Mortgage	Independent estimate of the home's value, used for LTV
Title search and insurance	Mortgage	Checks ownership and insures the lender. Often a service you can shop for
Credit report fee	Mortgage	Cost of pulling your credit reports
Recording and government fees	Mortgage, auto	Recording the new mortgage, or updating the vehicle title
Attorney or closing fee	Mortgage	Payment to the party that conducts the closing
Mortgage insurance	Mortgage	PMI on conventional loans with under 20 percent equity, or fees on government-backed loans
Prepayment penalty on the old loan	Any loan with one in the contract	A charge for paying off early, added to your payoff amount
Rate lock extension fee	Mortgage	Charged if closing is delayed past the lock period
Prepaid items and escrow	Mortgage	Interest, taxes and insurance paid at closing. Not a true refinancing cost, since you would owe them anyway

Documents you will need

Lenders ask for documents that prove who you are, what you earn, what you owe and, for secured loans, what the asset is worth. Having them ready reduces the risk that a rate lock expires.

Document	Mortgage	Auto loan	Personal loan	Student loan
Photo ID and Social Security or tax ID number	Yes	Yes	Yes	Yes
Pay stubs or other proof of income	Yes	Yes	Yes	Yes
Tax returns, W-2 or 1099 forms	Yes	Sometimes	Sometimes	Sometimes
Bank and asset statements	Yes	Rarely	Sometimes	Sometimes
Current loan statement and payoff amount	Yes	Yes	Yes	Yes, for each loan
Proof of insurance	Homeowners	Auto	No	No
Asset details	Property address, appraisal	VIN, mileage, title	No	No
Other	Second mortgage statements	Add-on product details	List of debts to pay off	Proof of graduation, cosigner details

How to refinance, step by step

The process is similar for every loan type: set a goal, check your position, compare offers, run the numbers, apply, close and confirm the old loan is paid off.

Define the goal. The CFPB advises refinancing only if it meets an important financial goal.
Get the facts on your current loan: balance, rate, months left, payment, any prepayment penalty and a payoff quote.
Check your credit reports and fix errors.
Estimate your equity in the home or car.
Prequalify with several lenders, including your current one.
Request written offers for the same amount, term and rate type, within a short window.
Run the break-even and total-interest comparison for each offer.
Apply and submit documents promptly. For a mortgage, decide whether to lock the rate.
Do not change your finances mid-application. The CFPB notes a locked rate can still change if your application details change.
Review the final documents against the offer you accepted.
Close, and keep copies of everything.
Keep paying the old loan until it is confirmed paid. For a car, the CFPB suggests checking with the old lender about a week later.
Set up the new payment and check the first statement.

UK readers: remortgaging

In the UK, refinancing a home loan is called remortgaging. It means moving your mortgage to a new deal, with a new lender or your current one. Most borrowers do this when a fixed or introductory deal ends, because the loan otherwise moves to the lender's standard variable rate, which is usually higher.

Remortgage vs product transfer

Your current lender might offer you a new deal, called a product transfer. It is usually quicker than moving lender, which involves a full application, a valuation and legal work.

An existing lender can generally offer a new deal without a fresh affordability assessment, as long as you do not borrow more. That helps if your income has fallen. The trade-off is choice: your lender's range may not be the cheapest on the market, so compare both routes.

Early repayment charges

An early repayment charge (ERC) is the UK equivalent of a prepayment penalty. The FCA Handbook defines it as a charge levied by the lender if the loan is repaid in full or in part before a date or event specified in the contract. ERCs are common during fixed-rate periods.

Check any ERC before ending a deal early, because switching may not be as beneficial as it first looks. Put the ERC, any exit fee, and the arrangement, valuation and legal fees on the new deal into your break-even sum.

Timing and fees

Under the UK government's Mortgage Charter, signatory lenders let customers approaching the end of a fixed-rate deal lock in a new deal up to six months ahead. Customers who are up to date can also switch at the end of their deal without another affordability check. Starting the new deal the day after the old one ends avoids both the ERC and the standard variable rate.

UK deals often trade a lower rate for a higher arrangement fee. Add up all monthly payments plus all fees over the deal period and compare that total. Adding the fee to the mortgage means paying interest on it.

Advice and protection

UK mortgage lenders and brokers must be authorised by the FCA. Check the firm on the FCA Register before handing over documents or fees. If you are struggling with payments, contact your lender early and use MoneyHelper's free guidance.

A short note for Canadian readers

In Canada, most mortgages have a term shorter than the full amortization period, so renewal is the natural moment to change lender or terms.

The Financial Consumer Agency of Canada (FCAC) says federally regulated lenders must provide a renewal statement at least 21 days before the term ends. It suggests contacting lenders and brokers well before then. Switching can involve setup, appraisal and administration fees. The FCAC also warns that extending your amortization lowers the payment but can add thousands or tens of thousands of dollars in interest.

Scams and red flags

Refinancing scams target people under financial pressure. The common thread is a demand for money or personal information before any real service is delivered. A legitimate lender earns its fees when the loan closes, not before.

Three common schemes

Advance-fee loans. The FTC warns about lenders that guarantee a loan regardless of credit history, then ask for payment before releasing the money. Legitimate lenders check your credit first. The FTC's rule: do not pay for a promise.
Mortgage relief scams. The FTC explains that it is illegal for a company to charge you anything until it has given you a written offer of relief from your lender and you have accepted it. Warning signs include being told to stop contacting your lender or to sign over your deed.
Student loan "relief" scams. The FTC says you never have to pay for help managing federal student loans. Warning signs include upfront fees, promises of special access, government-style seals and requests for your FSA ID.

Red flags at a glance

Red flag	Why it matters	What to do
Fee demanded before a loan or written offer	Classic advance-fee fraud	Refuse. Real fees are disclosed in writing
"Guaranteed approval" before a credit check	Real lenders assess credit and income first	Walk away
Payment by gift card, crypto, wire or payment app	Hard to trace or reverse	Do not pay. Report it
Pressure to sign today	Stops you comparing offers	Take the documents away and read them
Told to stop paying your current lender	Leads to missed payments and possible foreclosure	Keep paying and call your lender directly
Asked to sign over your deed or title	You may lose your home or car	Never sign. Get legal advice
Blank spaces or changed figures in documents	Terms can be altered after you sign	Sign only when every figure matches

Check that an unfamiliar lender is licensed with your state regulator or, in the UK, authorised by the FCA. In the US, report fraud at ReportFraud.ftc.gov. See also our guide on how to avoid loan scams and fake offers.

Common refinancing mistakes

Most refinancing mistakes come from looking at the monthly payment alone. The rest come from skipping the paperwork.

Chasing the lowest payment. A longer term often raises the total cost.
Ignoring fees. A lower rate with a large fee can be worse than your current loan.
Not calculating break-even, or overestimating how long you will keep the loan.
Believing "no-cost" means free. The cost is in the rate or the balance.
Taking one quote. Lenders are not required to give you their best rate.
Spreading applications over months instead of a short shopping window.
Forgetting the old loan's prepayment penalty or, in the UK, the ERC.
Refinancing federal student loans without understanding what is lost for good.
Taking cash out to fund spending, or moving card debt onto your home without a plan.
Refinancing an upside-down car into a longer loan.
Refinancing repeatedly. Each time brings new fees and a reset term.
Opening new credit during the application.
Stopping payments on the old loan before the payoff is confirmed.
Not reading the final documents.

Refinancing checklist

Use this list before you sign.

I know my goal: lower total cost, lower payment, shorter term, a fixed rate or cash out.
I have my current balance, rate, months remaining and a payoff quote.
I have checked for a prepayment penalty or early repayment charge.
I have checked my credit reports for errors.
I know roughly what my home or car is worth and what I owe.
I have written offers from at least three lenders, gathered within about two weeks.
Every offer is for the same amount, term and rate type.
I have compared APRs and total fees, not just interest rates.
I have calculated the break-even month and expect to keep the loan well beyond it.
I have compared total interest from today on the old and new loans.
The new term is no longer than the time left on my old loan, or I have a clear reason.
If the rate is variable, I could afford the highest possible payment.
None of the student loans I am refinancing are federal, or I accept losing federal protections for good.
I have not paid any fee before receiving a written loan offer.
I will keep paying the old loan until I have written confirmation that it is paid off.

FAQ

Is it worth refinancing a loan to save money?

It is worth it when the total cost of the new loan, including all fees, is lower than the cost of keeping your current loan for as long as you will have it. Work out the break-even point and compare total interest. If you will keep the loan well past break-even and the term is not longer, refinancing usually saves money.

How do I calculate the break-even point on a refinance?

Add up every cost of refinancing. Subtract the new monthly principal and interest payment from the old one to get your monthly saving. Divide the costs by the saving. For example, $7,200 of costs divided by a saving of $149.95 a month gives about 48 months.

How much lower should the interest rate be before I refinance?

There is no single figure. What matters is how the rate gap, your balance, the fees and your time horizon combine. A small drop on a large mortgage you will keep for years can pay off. A large drop on a small loan with a high fee may not.

Does refinancing hurt your credit score?

Usually only slightly and temporarily. A full application creates a hard inquiry and a new account. FICO says its scores only consider inquiries from the last 12 months. Paying the new loan on time matters far more.

How many lenders can I apply to without damaging my credit?

For mortgage, auto and student loans, as many as you like within the shopping window. The CFPB says multiple mortgage credit checks within 45 days are recorded as a single inquiry. FICO says the window is 45 days in recent score versions and 14 days in older ones.

What is the difference between refinancing and debt consolidation?

Refinancing replaces one loan with a new loan on different terms. Debt consolidation combines several debts into one. Both can cost more in total if the new term is longer.

What is the difference between refinancing and a loan modification?

A refinance is a new loan you must qualify for. A modification changes the terms of your existing loan and is arranged with your current servicer, usually because you are struggling to pay.

Should I refinance my federal student loans into a private loan?

Only if you are certain you will never need the federal protections. The CFPB says you lose access to income-driven repayment, federal deferment and forbearance, and forgiveness programs, and that the change cannot be reversed. You can refinance private loans and leave federal loans alone.

Can I refinance with bad credit?

Sometimes, but the offer may not beat the loan you have, because your score affects the cost. Be wary of anyone who guarantees approval. If you cannot afford your payments, ask your current lender about hardship options instead.

Can I refinance a car loan if I owe more than the car is worth?

It is difficult. A loan-to-value ratio above 100 percent means negative equity, and lenders may decline or charge more. The CFPB's options include paying the loan down and waiting until you have positive equity.

Is a no-closing-cost refinance really free?

No. The CFPB explains that the costs are paid through a higher interest rate or by adding them to the loan balance. Both raise what you pay over time.

Can I cancel a refinance after signing?

For many refinances of the home you live in, yes. The CFPB explains that the right of rescission gives you until midnight of the third business day after closing to cancel in writing. Other loan types generally have no federal cooling-off period.

What is remortgaging in the UK, and when should I do it?

Remortgaging means moving your mortgage to a new deal, with a new lender or through a product transfer with your current one. Most borrowers time it for when their fixed deal ends, to avoid early repayment charges and the standard variable rate.

Bottom line

Refinancing is a tool, not a saving in itself. It works when a lower rate, modest fees and a sensible term come together, and when you keep the loan long enough to recover what you paid to get it.

Before you sign, work out the break-even month, compare total interest from today on the old and new loans, and check what you would give up, whether that is home equity, years of repayment progress or federal student loan protections. If the numbers still favor the new loan, refinancing is likely to save you money. If not, keeping the loan you have is a perfectly good decision.

table of contents feature [open]