Personal Finance
Factors to consider before refinancing a loan, according to experts
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The Federal Reserve announced a half percentage point, or 50 basis points, interest rate cut at the end of its two-day meeting Wednesday. And, naturally, some Americans will want to make the most of the central bank’s first rate cut since the early days of the Covid pandemic.
“How quickly the impact of lower rates is felt depends on whether households have variable or fixed financing rates” said Stephen Foerster, professor of finance at Ivey Business School in London, Ontario, Canada. Some adjust fairly quickly, others don’t reset at all.
That is, unless you can refinance.
According to a recent report from Nerdwallet, 18% of consumers said they planned to refinance a loan once rates go down. The financial services site polled more than 2,000 U.S. adults in July.
While taking advantage of lower rates could make financial sense, there are often other considerations, as well, depending on the type of loan, experts say.
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No ‘universal rule’ for refinancing a mortgage
For starters, while mortgage rates are partly influenced by the Fed’s policy, they are also tied to Treasury yields and the economy. So, home loan rates may continue to fluctuate.
Further, most homeowners still have a lower rate on their loan than what they could likely get if they were to refinance now — with the exception of those who bought a house within the last two or three years, according to Jacob Channel, senior economic analyst at LendingTree.
Roughly, 82% of homeowners are locked in at rates below 5%, and 62% have rates under 4%, a 2023 Redfin analysis found.
“There isn’t a universal rule for when people should think about refinancing a mortgage,” Channel said. “Some people will tell you that you shouldn’t think about refinancing until you could get a rate that’s at least 50 basis points lower than what you currently have, others will say that you should wait until you could get a rate that’s 100 or more basis points lower.”
Other factors to consider are your creditworthiness, which will ultimately determine what rate you can qualify for, as well as the closing costs, which typically run 2% to 6% of your loan amount to refinance, according to LendingTree.
“There’s no one-size-fits-all answer to the question of whether or not somebody should refinance their mortgage,” Channel said.
Don’t wait to reassess credit card debt
When it comes to credit card debt, the math is a little more cut and dried.
Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — nearing an all-time high. Those APRs will edge lower now, but not significantly.
No matter what the Fed does, refinancing high-interest credit card debt is a good move, according to Matt Schulz, chief credit analyst at LendingTree.
“A 0% balance transfer card is likely your best choice, assuming you have good enough credit to get one,” he said. “A low-interest personal loan can be a good tool, as well.”
Alternatively, borrowers can call their card issuer and ask for a lower interest rate on their current card. The average reduction is about 6 percentage points, one LendingTree survey found. “That’s like going from 25% to 19% and is way, way more impactful than anything the Fed’s going to do,” Schulz said.
Auto loan refi options depend on equity
Although auto loans are fixed, the rates on new-car loans will come down with the Fed’s moves.
But for those with existing auto loan debt, refinancing is not a given.
“An auto loan’s interest is weighted more towards the beginning of the loan; therefore, if you’ve had the loan for a year or two, you’ve already paid quite a bit in interest,” said Ivan Drury, Edmunds’ director of insights. “Even though lowering your rate makes the monthly payment less, it could result in paying more interest over the life of the loan.”
In addition, “if you were paying mostly interest, you might not have enough equity — or any — to really leverage the lower rates,” he said, unless you put more cash toward refinancing and take out a smaller loan.
Consumers may benefit more from improving their credit scores, which could pave the way to substantially better loan terms, he said.
Refinancing student debt can come with risks
Concerns about the future of the Social Security Administration may tempt some workers to claim retirement benefits early.
Yet experts warn that may not be the best decision.
It’s no secret that Social Security is running low on funding. Fears that the program might not be able to pay benefits in the future — or that benefits might be cut — have prompted people to take their money earlier, even if it means receiving a smaller monthly payment for the rest of their lives.
In 2024, the trustees projected the trust fund used to help pay retirement benefits may be depleted in 2033, when 79% of benefits will be payable. Social Security’s trustees have not yet released new trust fund depletion projections in 2025.
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Changes at the Social Security Administration — including staff cuts and long wait times for service — do not encourage more confidence in the program, noted Kelly LaVigne vice president of consumer insights at Allianz Life Insurance Company.
A recent survey from Allianz found that 64% of Americans are more worried about running out money than they are about dying. Meanwhile, Social Security not providing enough money was the second reason cited for those worries behind inflation, the survey found.
On average, Social Security benefits replace about 40% of a worker’s pre-retirement income, according to the SSA. As Congress eventually seeks a fix to the program’s funding woes, that may require Americans to pay more taxes and/or receive less benefits.
“If you cut that, or there’s a threat of cutting that, that does make the fear of running out of money even greater,” LaVigne said of Social Security benefits.
Why it’s generally best to wait to claim
Many people may be tempted to claim Social Security benefits now to get the money while they can.
“There are people who make the comment, ‘I want to start taking from it now, before it’s taken away from me,'” said Andrew Herzog, a certified financial planner and associate wealth manager at The Watchman Group in Plano, Texas.
In those cases, Herzog said he typically reassures clients that scenario is “very unlikely,” particularly for older generations who are already in or near retirement. Lawmakers including President Donald Trump have promised not to cut the Social Security benefits retirees are already receiving. For future retirees, it is possible benefits may be reduced, though it is unlikely the program will entirely run out of money.
Individuals who want to take their retirement benefits at age 62 — otherwise known as the early eligibility age — need to understand their benefits will be reduced, Herzog said. By waiting until full retirement age — generally age 66 to 67, depending on date of birth — beneficiaries may receive 100% of the benefits they earned.
For workers whose full retirement age is 66, claiming early at 62 will result in a 25% reduction in monthly benefits. For workers whose full retirement age is 67, claiming at 62 prompts a 30% cut to monthly benefits. Yet most people claim before full retirement age, according to the Congressional Research Service.
Workers who wait even longer to claim retirement benefits — up to age 70 — stand to receive the biggest monthly checks. For every year individuals wait past full retirement age, they stand to receive an 8% increase to their benefits. For workers whose full retirement age is 66, that represents a 32% boost to monthly benefits. For workers with a full retirement age of 67, that’s a 24% boost.
“For those who expect to have a normal life expectancy of 80 years plus, then it can make sense to wait to age 70 to get the maximum benefit,” Herzog said.
To be sure, the decision comes down to many factors, including how long someone is able to work, whether they can draw from other investment income and the choice that will help them best sleep at night, Herzog said.
Notably, delaying even just one month can help increase monthly benefit checks.
When to claim Social Security benefits early
Most workers who expect to live long lives will want to prioritize the risk they could outlive their money, and therefore delay claiming benefits, according to Vanguard research.
But for those who do not expect to live as long, the prospect of break-even risk — or the risk of receiving a smaller total sum by delaying — should be prioritized instead, according to Vanguard.
Claiming early can provide other perks, such as making it possible to spread the tax burden of that income over more years, Vanguard’s research notes. Plus, with lower monthly checks, less of that Social Security income may be taxed and it may be possible to keep Medicare income-related monthly adjusted amounts, or IRMAA, low, according to the research.
Yet for many individuals, there are other reasons to wait to claim that are compelling, particularly if their spouses may need to live on their benefits once they die. Moreover, having higher monthly benefits means they may be better prepared to withstand unexpected financial shocks, according to Vanguard.
A trader works on the floor at the New York Stock Exchange in New York City, U.S., April 28, 2025.
Brendan McDermid | Reuters
Periods of extreme volatility in the stock market may feel painful for investors — but such periods are generally followed by strong stock returns, if history is a guide, according to market analysts.
In that sense, many investors would be wise not to sell stocks — and should perhaps even buy more, analysts said.
The VIX index, also known at the Wall Street fear gauge, measures the market’s estimate of expected volatility in the S&P 500 stock index.
When the VIX has spiked to a level above 40 — indicating “significant” volatility — the S&P 500 has been up 30% a year later, on average, according to a Wells Fargo Investment Institute analysis of the market from January 1990 to April 16, 2025.
The odds of stock returns being positive 12 months later were also above 90% during these periods, the analysis found.
In other words, volatility creates a “potential opportunity,” Edward Lee, a Wells Fargo investment strategy analyst, wrote in the analysis on Monday.
“Concern is normal, but history has taught us that periods of higher volatility have historically led to higher returns,” Lee wrote.
So, why is there a greater probability of positive and higher stock returns relative to periods of lower volatility?
Volatility “tends to coincide with times of high drawdowns and investor panic, both of which lead to higher probabilities of investing success of the next 12 months,” Lee wrote in an e-mail.
Stock volatility spikes on Trump tariff news
Stock volatility spiked in early April after President Donald Trump announced unexpectedly high country-specific tariffs, and the S&P 500 sold off almost 11% in two days.
The VIX reached about 53, among the top 1% closes for that index in history, Callie Cox, chief market strategist at Ritholtz Wealth Management, wrote last week.
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But low expectations often lead to “relief rallies,” when people pile back into stocks because the initial news isn’t quite as bad as they thought, Cox wrote.
For example, since 1990, about half of the S&P 500’s 14 selloffs of 10% or more ended within a week of the VIX’s highest close, and three ended on the day of its highest close, Cox wrote.
Such selloffs are usually “V-shaped,” meaning there’s a sharp downturn and then a quick rebound, she said in an interview with CNBC.
However, things could be different this time around, she said.
“We’re [still] trying to figure out where the new center of gravity is” with trade policy, Cox said.
“The unexpected news part of the sell-off is probably past us, and if you are a long-term investor, now is probably the time to start buying,” Cox said. “But you can’t expect this to be the bottom of the sell-off. And history isn’t always gospel.”
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