Refinancing

Refinancing means replacing an existing loan with a new one — moving to a lower rate, adjusting the term, or consolidating several debts into one.

The usual goal is cutting interest. Move a 300,000 loan from 5% to 4% and you save 3,000 a year. It is worth considering whenever rates have fallen since you borrowed or your credit score has improved.

Switching has costs, though: the old loan's prepayment penalty, plus stamp duty and registration fees on the new one. Work out how long it takes for the interest saved to exceed those charges.

Consolidation is the other major use. Rolling high-rate card debt into a lower-rate loan cuts the interest burden sharply and leaves a single due date, which reduces the risk of missing a payment. Timing matters too. If you are already past the halfway point of the term, little interest remains to save, so the gain from switching shrinks. The earlier you refinance, the more it saves.