Experts offer advice on whether to refinance mortgages or auto loans amid declining interest rates.

• The Federal Reserve just slashed interest rates by a half percentage point.
• Depending on the type of loan, refinancing may provide borrowers with some opportunities to open up new financing options.
• Financial experts provide guidance on various financial products, including mortgage refinancing, credit cards, auto loans, and student debt.

The Federal Reserve cut interest rates by 50 basis points at the conclusion of its two-day meeting on Wednesday, prompting some Americans to take advantage of this opportunity.

The speed of feeling the impact of lower rates depends on whether households have variable or fixed financing rates, according to Stephen Foerster, a professor of finance at Ivey Business School in London, Ontario, Canada. Some adjust quickly, while others don't reset at all.

That is, unless you can refinance.

In July, Nerdwallet surveyed over 2,000 U.S. adults and found that 18% of consumers planned to refinance a loan once interest rates decrease, according to a recent report.

Experts advise that while taking advantage of lower rates could make financial sense, it's important to consider other factors depending on the type of loan.

The Fed rate cut has implications for your finances. The 'vibecession' is ending as the economy experiences a soft landing. Despite inflation cooling, more Americans are still facing financial difficulties.

No 'universal rule' for refinancing a mortgage

Home loan rates may continue to fluctuate as they are influenced by both the Fed's policy and Treasury yields, and are tied to the economy.

According to Jacob Channel, senior economic analyst at LendingTree, most homeowners still have a lower interest rate on their loan than what they could likely get if they were to refinance now, except for those who bought a house within the last two or three years.

According to a 2023 Redfin analysis, 82% of homeowners have rates below 5%, and 62% have rates under 4%.

"There isn't a definitive guideline for when individuals should consider refinancing their mortgage, as opinions vary. Some individuals suggest waiting until a rate of at least 50 basis points lower than the current one is achievable, while others advocate for waiting until a rate of 100 or more basis points lower is obtained."

Your creditworthiness and the closing costs, which usually range from 2% to 6% of the loan amount, will determine the interest rate you can qualify for when refinancing your loan through LendingTree.

Channel stated that there isn't a definitive answer to whether someone should refinance their mortgage.

Don't wait to reassess credit card debt

The calculation for credit card debt is more straightforward.

The Fed's benchmark has a direct connection to the variable rate of most credit cards. After the rate hike cycle, the average credit card rate increased from 16.34% in March 2022 to over 20% today, almost reaching an all-time high. Although APRs will decrease slightly now, the reduction will not be significant.

According to Matt Schulz, chief credit analyst at LendingTree, refinancing high-interest credit card debt is always a wise decision, regardless of the actions taken by the Fed.

"If you have good credit, a 0% balance transfer card is likely your best choice. Alternatively, a low-interest personal loan can be a useful tool."

One LendingTree survey found that borrowers can obtain an average reduction of 6 percentage points on their interest rates by calling their card issuer and requesting a lower rate. This reduction is equivalent to going from 25% to 19%, which is significantly more impactful than any action the Fed may take, according to Schulz.

Auto loan refi options depend on equity

New-car loan rates will decrease due to the Fed's actions, while auto loan rates remain fixed.

Refinancing is not always an option for those with existing auto loan debt.

"According to Ivan Drury, Edmunds' director of insights, an auto loan's interest is heavily concentrated at the start of the loan, meaning that if you've had the loan for a year or two, you've already paid a significant amount in interest. However, lowering your interest rate may result in lower monthly payments, but it could ultimately lead to paying more interest over the life of the loan."

Unless you put more cash toward refinancing and take out a smaller loan, you might not have enough equity to leverage the lower rates if you were paying mostly interest.

Improving credit scores could lead to significantly better loan terms, thereby benefiting consumers, according to him.

Refinancing student debt can come with risks

As interest rates on private variable-rate student loans decrease, borrowers may want to consider refinancing.

Mark Kantrowitz, a higher education expert, stated that borrowers have the option to refinance their loans to take advantage of lower interest rates or better credit scores, which can result in lower interest rates, or if they wish to switch lenders.

According to Kantrowitz, refinancing a federal student loan into a private loan means losing the benefits that come with federal loans, including deferments, forbearances, income-driven repayment, and loan forgiveness and discharge options.

Extending the term of a loan means you will pay more interest on the balance, just like other types of refinancing opportunities.