Author Topic: Refi student loans: Fixed rate premium  (Read 1631 times)

skuzuker28

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Refi student loans: Fixed rate premium
« on: April 13, 2016, 07:15:38 PM »
My wife has a couple of relatively large variable-rate student loans that I have been wanting to refinance into a fixed-rate note for awhile. (Un)fortunately, they are at low rates at the moment (4.25%) so any refinance is going to have some sort of premium to be paid for the fixed rate.

We looked at Sofi, and they offered 7.5%

She just got approved through Earnest, and at our chosen payment they offered 6.1% but we could get as low as 5.35% by increasing the payment.  However, that would burn through most of our monthly budget surplus (which has been used to knock down other higher interest debt).  They gave us enough headroom to roll her federal loans in as well, which would help lessen the sting of the rate hike, but still not ideal.

I know what I really need to do is run the numbers, but in general how much of a premium would you put on having a fixed-rate note versus a variable rate?  I don't know the future, but interest rates can't stay this low forever right?

rafiki

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Re: Refi student loans: Fixed rate premium
« Reply #1 on: April 13, 2016, 07:30:52 PM »
What is the balance, monthly payment, and what is the projected pay off period?  If the rates were to rise to a level that made you uncomfortable do you have excess cash that you could divert to the loan?

If this is something that you are going to pay off in the next couple years, keep in mind that interest is front loaded, so even if the rate rises, you won't be paying as much as you finish off the loan. If this is something that is going to take you a decade to pay off and you don't have the capital to cover it if rates rise, then it may make sense to go to a fixed rate.

Have you run the various rates in an amortization table and looked at the numbers? That is what I did when I made the decision to refinance into a variable rate loan. In my particular case, since I was going to pay off the loan in 2-3 years, I was "OK" with a variable rate.

skuzuker28

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Re: Refi student loans: Fixed rate premium
« Reply #2 on: April 13, 2016, 07:42:40 PM »
Loan 1: $20k/$170 a month
Loan 2: $25k/$200 a month

Proposed Earnest refinance: 6.1% $590/month 9 year term, 5.35% $930/month 5 year term

The hope/plan is to have them done within 5 years.  We've been focusing on Federal loans due to the higher interest rates.  Mine will be gone this month, then we'll get working on her Federal loans (roughly $15k).

You're probably right, I just need to run the numbers.  I'm probably being paranoid with rates.  I was really hoping they'd offer something in the high-4s or low-5s, but it was not to be.

onlykelsey

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Re: Refi student loans: Fixed rate premium
« Reply #3 on: April 13, 2016, 07:45:37 PM »
Interest rates cant stay this low forever, but stock market returns are likely to rise with rates (if not directly).  If you have some cash invested you can throw at the loans if rates rise, that could work.

forummm

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Re: Refi student loans: Fixed rate premium
« Reply #4 on: April 13, 2016, 08:23:22 PM »
I don't know what your incomes are like, but if you have 2 incomes, you really ought to be able to retire both those loans within a year or so if you needed to. Maybe your spending is where you should look.