How Does Refinancing Work?

Revised By Jennifer Tucker
April 17, 2025

3 Min. Read

Refinancing a Loan: What you Need to Know

Refinancing your loan can be a game-changer for your financial well-being, giving you opportunities to save money and achieve your long-term goals.

Refinancing is the process of replacing an existing loan with a new loan that has different terms, often with the goal of obtaining a lower interest rate, reducing monthly payments, or changing the length of the loan.

At Marine Credit Union, we’re here to help you make informed decisions about your loans. Here, we’re exploring what it means to refinance a loan and how it might benefit you.

Benefits of Refinancing a Loan

You might be wondering, “Is refinancing a good idea?” The answer will depend on your individual circumstances and financial goals, so it’s important to determine what you want to achieve by changing your loan terms. Do you want to lower your interest rate? Make your monthly payments more manageable? Pay off your loan sooner?

As you settle on your goals, consider these potential benefits of refinancing a loan:

Lower your interest rate

If interest rates have dropped since you took out your original loan, refinancing to a lower rate could save you money by paying less interest over the remaining life of the loan. You may also be able to save money if you have an adjustable-rate loan and want to switch to a fixed-rate loan to lock in a more stable interest rate.

Reduce your monthly payments

Refinancing can reduce your monthly payments through a lower interest rate or an extended loan term. Lowering your interest rate or extending your loan terms may help you pay less in interest over the life of the loan. Lower monthly loan payments can free up cash flow for other expenses or savings goals.

Improve your loan term

Refinancing may give you the opportunity to either lengthen or shorten your loan term. If you extend your loan term, you may lower your monthly payments but increase the total interest paid over the life of the loan. If you shorten your loan term, you may save money on interest but increase your monthly payments.

Consolidate debt

Refinancing may allow you to consolidate multiple debts into a single loan, simplifying your finances and reducing overall interest payments. Learn more about debt consolidation and how it works.

Access your home equity

If your home has appreciated in value, refinancing can give you access to your home’s equity. That equity can be used for home improvements, emergency expenses, or other financial needs. Learn about how to use home equity the right way.

As you consider whether refinancing is right for you, it’s also important to calculate the costs associated with refinancing. Refinancing may require you to pay closing costs, appraisal fees, and origination fees. Ultimately, refinancing can be a smart financial move if it helps you save money, pay off debt faster, or achieve other financial goals.

How to Refinance a Loan

Before you refinance an existing loan, you want to understand what the process looks like. You might experience a bit of déjà vu—the steps to refinance a loan look similar to the steps you took to first get a loan.

Unsure what you can refinance? The most common types of loan refinancing are student loans, auto loans, and mortgage loans.

Here’s what the process looks like:

1. Credit check. Your credit score is an important factor that lenders consider when you apply for a new loan. Before you start the refinancing process, it’s a good idea to check your credit score and make sure it’s in good shape.
2. Review current loan. Assess your current loan terms, including the interest rate, monthly payment, and remaining balance. Determine your financial goals for refinancing, such as obtaining a lower interest rate, reducing monthly payments, or accessing cash.
3. Research lenders and loan options. Shop around for lenders and loans and compare rates and fees. Working with a mortgage broker can help you find the best deal, and your local bank or credit union can help out, too.
4. Application and underwriting. Once you’ve chosen a lender, you’ll fill out an application and provide documentation like pay stubs, tax returns, and bank statements. The lender will review your application, assess your creditworthiness, and determine if you qualify for refinancing.
5. Loan approval and closing. If your application is approved, you’ll receive a loan offer outlining the terms and conditions of the refinanced loan. You’ll sign the necessary documents, pay any closing costs or fees, and then the lender will use the proceeds of the new loan to pay off your old loan.

Learn more about when it makes sense to refinance a loan and how much you could save by refinancing your home loan.

All loans subject to Marine’s approval process. Membership eligibility required. Federally insured by NCUA. Equal Housing Lender.