Originally published by ELFI on September 22, 2025
Saving up for all of the costs of buying your first home can feel like a monumental task. For many, it involves making strategic personal finance choices to minimize debt and maximize savings. A potential way to help with both includes tackling one particular area of debt: student loans. If your monthly student loan payment or overall student debt feels like a barrier to making traction towards your homeownership goals, student loan refinancing may be worthwhile to consider.
As you explore your options, there are a few key things to note about student loan refinancing that may impact the process of buying a home. Here’s what to know about the benefits and ramifications of student loan refinancing, especially for new or soon-to-be homeowners.
How does student loan refinancing work?
When you refinance student loans, you are taking out a new loan to pay off part or all of your existing debt, often with a new rate and repayment term. Many choose student loan refinancing for benefits such as:
Better Interest Rates – Depending on your existing loan(s) and the current rate environment, you may be able to refinance with a lower interest rate, helping you save over the life of your loan.
Easier-to-Manage Monthly Payments – When refinancing, you may save month-over-month by getting a lower interest rate and/or extending your repayment period. Let’s see how this might look with an example.
For instance, if you had a $10,000 existing loan with 10 years remaining on your term and an interest rate of 8%, your monthly payment would be approximately $121, and you’d pay $4,559 in interest over your term. If you refinanced to a lower rate of 6.8% and kept everything else the same, your monthly payments would be $115, and you’d pay $3,810 in interest over your term.
However, if you refinance and extend your term to 15 years at that 8% interest rate, your monthly payments would decrease to $96. But you’d also pay $7,201 in interest over your loan term as opposed to $4,559.
Lower Debt-to-Income (DTI) Ratio – Reducing your monthly student loan payments could also lower your DTI ratio, which is a factor your lender may likely consider when determining your eligibility for a mortgage. The DTI ratio lenders prefer can vary depending on the institution and the mortgage type, but generally speaking a lower DTI could mean that you qualify for a larger loan or a better interest rate — and even a slightly lower interest rate could result in huge savings over your mortgage term.
Federal or Private Student Loan Refinancing
Your refinancing options can vary, so evaluating your student loan type, amount owed, and interest rate are helpful places to start.
For instance, if you have multiple federal student loans, you might consider a Direct Consolidation Loan, which lumps together your debt at the weighted average interest rate of all of your loans, rounded up by one-eighth of a percentage point.
You could also refinance your federal student loans, private student loans, or a combination of the two with a private lender. Many choose this approach in order to gain a flexibility over their repayment, either by taking advantage of a lower interest rate or choosing a term that works better for their lifestyle. Some borrowers interested in buying a house might opt to refinance to a private loan with a slightly longer repayment term, reducing monthly payments and freeing up a bit more room in their budget to better accommodate a mortgage. However, by refinancing with a private lender, you would lose benefits associated with your federal student loans in the process, such as eligibility for federal income-driven repayment plans or Public Service Loan Forgiveness (PSLF). Also, by extending the loan term, you may potentially pay more in interest overall.
The Credit Impact of Refinancing Student Loans
Should you decide to refinance student loans, the final approval process will likely include a hard credit inquiry, which can cause a small “ding” in your credit store. According to myFICO, this decrease is typically fewer than five points. Also, refinancing may be considered a new credit account, can also cause a small decrease. In the long term, this impact is temporary because it is relatively easy to recover from, especially if refinancing helps with managing your payments and overall debt.
With this in mind, timing your student loan refinance with other lending projects is a key consideration. With a hard credit inquiry, multiple inquiries within a short period, roughly 14 to 45 days, are often considered as a single inquiry, allowing you to “shop” around without further penalty to your credit within this window. However, a rule of thumb is to space out applications that require a hard credit check by six months or more, to allow for your credit to be rebuilt. In other words, refinancing student loans is a step you may want to take well in advance of a mortgage loan application.
Should you refinance your student loans before applying for a mortgage?
If you have student loans that you are considering refinancing as you work toward homeownership, you have a number of considerations to keep in mind.
First, there are several advantages to refinancing if a new rate and term might better fit your financial goals. Whether the advantages outweigh the drawbacks, however, depends on the type of loan(s) you hold and your financial circumstances.
Secondly, refinancing and applying for a home loan back-to-back may not be optimal for your credit standing and, relatedly, your mortgage options. Therefore, refinancing may be more beneficial if homeownership is one or more years out for you.
As you begin estimating your home buying power, SouthEast Bank’s suite of mortgage calculator tools may be able to help!
Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as financial, legal or tax advice. An attorney, financial advisor, and/or tax advisor should be consulted for advice based on your circumstances.
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