Author Topic: Refi and student loan question.  (Read 2700 times)

nickeboy

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Refi and student loan question.
« on: September 06, 2016, 10:16:53 AM »
Hello MM's I am new to this blog and this forum. I'm pretty frugal to begin with, but things have gotten a little out of hand for the past few years. 10 year old Business is finally doing very well. I'm currently trying to turn this around. I've started calculating all expenses and income more closely. I'm working on writing a case study, but haven't finished yet. In the meantime I have an urgent question. Fearing that interest rates are going to go up, I want to make some moves. I'm thinking about doing a refi (3.75%) and using some of the equity to pay off a student loan. I would also have to pull money from my savings to pay remaking student loan balance. I would then pay extra every month to get it paid off in 15 years. Is this right or should I invest my savings? Hair is currently on fire, but big Facts are listed below.

35yo single income
Married
2 kids (3&5)
Business owner 250k income
401k savings 150k
Bank savings 145k
Mortgage 330k loan, house value 525k (4.375%)
Student loan 135k (4.625%)
All other debts have been paid off. (CC, auto etc.)
« Last Edit: September 06, 2016, 10:18:37 AM by nickeboy »

nickeboy

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Re: Refi and student loan question.
« Reply #1 on: September 06, 2016, 12:39:34 PM »
I can get to 3.25 for a 15 year.  I'm assuming 10-15k a month average.
I was putting the money away in the bank to buy rental real estate in the next year or 2.
With the money in the bank, should I payoff debt or invest it? Then use my monthly to payoff debt?

nickeboy

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Re: Refi and student loan question.
« Reply #2 on: September 06, 2016, 06:35:14 PM »
Thank you bender. If I'm correct, you are agreeing with my plan, but to go for the 15 year instead of the 30 year due to the lower interest rate?

frugaliknowit

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Re: Refi and student loan question.
« Reply #3 on: September 08, 2016, 01:25:44 PM »
My take is:

1.  Take all or whatever cash you can part with (I don't know how much of a reserve you need...only you know that) and pay down the student debt.
2.  Refinance into 15 year (assuming you will stay in the house long enough to break even on the closing costs) only taking out enough cash to pay off the student loan (assuming you were not comfortable using what is in your bank account to do so, presumably because you need a large cash reserve because of your business...).
3.  Skip all "unmatched" 401K investing until all of your SLs are paid.  I don't believe in (indirectly) financing 401K investing by staying in debt (even if it's 3% mortgage cash-out). 
4.  When your emergency fund is back to where you need it, resume 401K investing and begin saving for the Investment Property.


« Last Edit: September 08, 2016, 01:29:05 PM by frugaliknowit »

chasesfish

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Re: Refi and student loan question.
« Reply #4 on: September 08, 2016, 02:18:14 PM »
Is the rental real estate for your business and replacing rent expense?  If so, that might change this answer below.

Refi up to $417k at a 15 year, then retire the student loan with your cash out plus savings.  Replenish the savings out of monthly cash flow.  You can't deduct the SL interest at your income.

How much liquidity do you need to keep for a cushion for your business?

tweezers

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Re: Refi and student loan question.
« Reply #5 on: September 08, 2016, 02:28:18 PM »
I don't know if you can still access the spreadsheet in this thread, but for us it was far better to stick with a 30 year mortgage and invest the difference even if the interest rate is higher.  If nothing else, it offers a lot more flexibility, and you can  still pay it off in less than 30 years.

http://forum.mrmoneymustache.com/ask-a-mustachian/math-help-refi-to-15-yr-mortgage-vs-investing/msg423573/#msg423573