7 Loans To Refinance as the Fed Cuts Interest Rates

The Federal Reserve Board (the Fed) announced a half-point interest rate cut this week, signaling that inflation is calming and it’s aiming to stabilize the economy.

Rate cuts mean that the interest rates on most loans will now also be lower, potentially leading to increased savings if you refinance now.

Here are the loans you can consider refinancing in light of this rate cut to save money .

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Mortgage Refinance

Mortgage interest rates move up and down with the Fed rates, so the Fed’s rate cut is an opportune time to refinance mortgages, according to Bill Ryze, a finance expert, certified chartered financial consultant (ChFC)  and board advisor at Fiona.com .

As a result, the total monthly spend on repayments reduces and so does the total interest you pay over the life of the mortgage, he said.

“Homeowners with higher mortgage interest rates on their existing mortgages benefit the most by switching over to another mortgage lender. However, they must weigh in other factors before taking the plunge,” Ryze said.

Similarly, refinancing is beneficial to borrowers looking to switch from an adjustable-rate mortgage to a fixed-rate mortgage to lock in lower rates.

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Auto Loans

Auto loans are similar to mortgages in that any change in the Fed rates impacts auto loans directly, Ryze explained. Refinancing an auto loan with lower rates can reduce your monthly payments and the overall cost of your loan.

“ Borrowers presently paying higher interest rates on their auto loans and those who have improved their credit scores since availing their existing loan can benefit from the Fed rate cuts,” he said.

Switching over to other auto loan providers at lower interest rates can reduce your overall loan cost.

Private Student Loans

Generally, student loans, especially federal student loans, are not affected by Fed rate cuts because these loans are fixed-rate loans, Ryze said. However, private student loans have an adjustable-rate structure.

“So, a Fed rate cut can lower the interest rate on these loans, leading to lower monthly payments and reduced costs over time.”

Students with private loans can consider refinancing their existing loans, especially if they have improved their credit scores significantly since the time they took out their loan.

Personal Loans

Personal loan interest rates are also directly linked to Fed rates, Ryze said. “So, a reduction in the Fed rates automatically results in lenders reducing their personal loan interest rates for new borrowers.”

Existing borrowers do not benefit from rate changes because their interest rates are fixed. However, refinancing a personal loan or consolidating a debt at a lower interest rate can help reduce monthly payments and the total interest paid over the loan’s life.

“ Borrowers with high-interest credit card debts or those with multiple personal loans can benefit by consolidating their existing debts at a lower interest rate,” Ryze said.

Lines of Credit

If you have a line of credit, such as a HELOC (home equity line of credit), this interest rate drop could net you a better rate, according to Matt Morgan, a licensed California real estate salesperson with IPA Commercial .

“When rates drop, I advise clients to review their existing loans and lines of credit since lower rates often mean lower payments, freeing up cash flow…For startups, lower rates may expand access to credit as lenders take on more risk.”

Life Insurance Policy Loans

If you’ve taken out a loan against a life insurance policy, now may be a good time to consider refinancing, according to Bill Boersma, a life insurance expert with OC Consulting Group .

“When rates drop, life insurance policy loans and premium financing deals should be reexamined. Lower rates mean lower interest charges, restoring policy performance and avoiding collapse,” Boersma said.

However, individuals still need good credit and financial discipline to benefit. Simply chasing lower rates often leads to taking on too much risk, he said.

Business Capital Loans

For businesses, lower rates expand access to capital, Boersma said. “However, companies still need viable business plans and financials to qualify. Rate cuts are opportunities, not guarantees.”

Boersma said that strategic credit management and prudent financing are key, regardless of rate changes. “Businesses and individuals should make decisions benefiting their long-term financial well-being. While rate cuts expand opportunities, there are no shortcuts. Real benefits come from understanding your options and making informed choices.”

This article originally appeared on GOBankingRates.com : 7 Loans To Refinance as the Fed Cuts Interest Rates