Updated: August 27, 2025
Saving up for your first home can feel like a monumental task, especially if the cost of living is high in your area. But there are steps you can take to make the process slightly less stressful, including refinancing your student loans. But if you go this route, there are a few key things to understand before you apply for a mortgage. One of the most important: you’ll likely need to wait a while to get a home loan after you refinance.
Still, refinancing your student loans could help you in a few different ways during your journey as a new homeowner. Here’s what to know about the benefits and what to expect.
How does student loan refinancing work?
When you refinance your student loans, you use a new loan to repay and replace multiple loans. Generally, the goal is to get a lower interest rate or change your repayment term to access lower monthly payments.
If you have federal student loans, you don’t have a true federal refinancing option that could result in a lower rate. Instead, you can opt for a Direct Consolidation Loan, which will simplify your monthly payments but result in a slightly higher interest rate. Your interest rate for a Direct Consolidation Loan will be the weighted average rate of all your loans, rounded up by one-eighth of a percentage point.
You could also refinance your federal, private, or a portion of the two with a private lender. This approach could result in a lower interest rate, depending on the current rate environment. But you’ll sacrifice any benefits you may have had with your federal student loans. Some borrowers interested in buying a house might opt to refinance to a private loan with a slightly longer repayment term. This will result in higher interest costs over your loan term, but it will likely reduce your monthly payments, freeing up a bit more room in your budget if you’re applying for a mortgage.
Should you refinance your student loans before applying for a mortgage?
Whether you should refinance your student loans before applying for a mortgage depends on your unique situation. But a key rule of thumb to keep in mind: You don’t want to apply for a student loan refinance just before applying for a home loan. A new student loan could ding your credit score slightly and may decrease the age of your credit accounts, which factor into your credit score as well. So, it’s wise to space out your applications by six months or more.
There are a few benefits of refinancing your student loans before applying for a mortgage, though you’ll want to space out your applications, as mentioned.
Lower Interest Rate
The first positive is that you could end up with a lower interest rate, though this depends upon your existing loan and what rates were when you borrowed originally. If rates are lower now, refinancing could help you save on interest, both in the short and longer term.
Easier-to-Manage Monthly Payments
Your monthly student loan payments could be lower if you refinance. This is due to two factors:
- A potentially lower interest rate, which may reduce your payments slightly. For instance, if you had a $10,000 existing loan with 10 years remaining on your term and a 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%, your monthly payments would be $115, and you’d pay $3,810 in interest over your term.
- A longer loan term, which could also reduce your payments. Let’s say your original monthly payment was $121 with a 10-year term and a $10,000 loan. If you refinanced and extended your term to 15 years, 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 monthly student loan payments could give you a bit more breathing room in your budget, reducing your stress and making it easier to manage your mortgage payments down the line.
Lower Debt-to-Income (DTI) Ratio
Reducing your monthly student loan payments could also lower your DTI ratio. Your lender will calculate this ratio when determining if you qualify for a mortgage, the size of your loan, and your interest rate. Lenders typically prefer a DTI below 36%, though some may accept a higher rate of monthly debt relative to monthly gross income.
A lower DTI could mean that you qualify for a larger loan, or a better term or interest rate. And even a slightly lower interest rate could result in huge savings over your mortgage term, so a lower DTI could be a worthy goal before you apply for a home loan.
The Bottom Line
Refinancing your student loans before you apply for a mortgage could help reduce your monthly payments, lower your debt-to-income ratio, or earn you a lower interest rate. But it’s important to consider the timing of your refinance. If you refinance immediately before applying for a mortgage, it could hurt your chances of getting approved for a home loan. But if you refinance several months in advance, it could help you financially.
Thinking about a student loan refinance? ELFI offers competitive rates, no fees, and personalized service. Learn more about refinancing with ELFI today.
