You are currently paying off a student loan with an interest rate of 9% and a monthly payment of $450. You are offered the chance to refinance the remaining balance with a new 10-year loan with an interest rate of 8% that will give you a significantly lower monthly payment. Refinancing in this way

A) may or may not be a good idea, depending on closing costs and how many years are remaining in your current loan term.

B) is always a good idea.

C) is a good idea if it lowers your monthly payment by at least $100.

D) should never be done

Question

Business

Sienna Cervantes

22 December, 20:17

You are currently paying off a student loan with an interest rate of 9% and a monthly payment of $450. You are offered the chance to refinance the remaining balance with a new 10-year loan with an interest rate of 8% that will give you a significantly lower monthly payment. Refinancing in this way

A) may or may not be a good idea, depending on closing costs and how many years are remaining in your current loan term.

B) is always a good idea.

C) is a good idea if it lowers your monthly payment by at least $100.

D) should never be done

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Answers (1)

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Blaine Valencia · Answer 1

A) may or may not be a good idea, depending on closing costs and how many years are remaining in your current loan term.

Explanation:

You have to evaluate if you are really going to save money if your refinance your loan. The interest rate may be lower, but what about other costs? What are the closing costs associated with this refinancing? What will be the amount of your new monthly payment, is it worth it? How long do you still have to pay your old loan?

For example, if you still have to pay your old loan 9 more years, and you save money by refinancing, it may be a good idea to go ahead and do it. But if you only have one more year of payments due, and you are not saving a lot of money, probably it's not worth it.