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Refinance $300k with First Republic: 1.95% vs 2.70% fixed rate

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  • Refinance $300k with First Republic: 1.95% vs 2.70% fixed rate

    hi everyone, my first post here.

    So, I have ~$500k in loans, all federal at ~6-7.5%.  I'd like to refinance with First Republic bank, as they offer the best rates in my area. However, they max out at $300k.  I'm currently tacking down my loans with ~$8k payments per month. So if I refinance $300k, this leaves 200k un-refinanced. Here are my main options:



    1) refi @ 1.95% fixed for 5 years. [$5252 per month, for 60 months]. However, I would need to maintain 20% of the loan, or $60k, in my checking account with them.


    2) refi @ 2.70% fixed for 5 years. [ $5351 per month, for 60 months]. If I go this route, I do not need to maintain that 20% with them. Instead, I can either pay down my loan more, or if I had that $60k lying around for an "emergency fund", I can place it into my separate savings account (which I get 2% interest). It probably makes more sense to use this $60k to pay off my "other loans" at 6.5%...


    Essentially, First Republic wants my money in their checking account so they can get interest on it. This would qualify me to get a lower interest rate on my refi. But does this make sense, mathematically?  1.95% sounds great on paper, but 2.70% isnt that bad either, especially if I can get 2% interest with my separate savings account (or use that $60k to pay off my remaining loan balance)

    I'm leaning towards the 2.7% option and use that extra $60k to pay off my remaining federal loan balance after refinancing ($200k at ~6.5%)

    I just cant seem to wrap my head around the math, and I would greatly appreciate your advice. Thanks.




  • #2
    Does the 20% to keep in checking adjust down as the loan is paid off? What happens if you go below 20%?

    If yoi had to leave the whole 60k there for 5 years and their checking pays 0%, they're effectively giving you $100/mo for 5 years to park 60k with them. That's reduced interest payment, so effectively tax free, as opposed to your fully taxable savings account. Can you make 100/mo post tax on your savings at zero risk guaranteed for 5 years?


    • #3
      Take the lower rate is what I'd do, but I dont like the 20% rules. You have to back that out and add it to the interest rate to get a true rate.

      Refinance the rest somewhere else of course, after doing the above math, maybe refinance everything elsewhere.


      • #4
        Paying that 60,000 "down payment" against your other 6.5% loan will save you $3,900/year when compared to parking it in the required zero percent checking account.

        Divide 3,900 by 12 months.  That extra $325 is like changing your monthly payment from 5,252 to 5,577.

        To borrow 300,000 and pay back 5,577 for 60 months is equal to a 4.38% interest rate.

        I agree you should take the second option at 2.7%.

        There could be a few moving parts (like what balance you plan to keep in the checking account anyway), but these numbers are correct when considering paying that entire 60,000 towards the 6.5% loan on day one - and not keeping any balance in a checking account.

        I hope this helps!


        • #5
          I’m typically all for the lower rate but given the 20% complexity and that you have significant other debt to pay down I’d go with the 2.7%. I’d refi the remainder with somebody else at a variable rate and hit it super hard.

          Any way you can squeeze a couple of extra thousand out of your budget for a few years? Increase income? That would take care of that second loan in about three years which is about how long most people can handle a very restrictive/limited budget.


          • #6
            Love FRB. I initially had 10% reserve for 1.95% fixed rate, but wanted to use the cash elsewhere, so I now have 2.45% without reserve.

            Looks like they increased their rates and capital requirements. I would not want to park 20% earning basically 0% interest for that many years. 2.7% is still very good.


            • #7
              Thanks for the breakdown! This makes a lot of sense, and I will likely go the 2.7% route. The extra money parked in the FRB (0%) checking account is essentially wasted. I plan on using that "extra" $60k to pay down the remaining debt.


              • #8
                Great idea. I'll definitely look into consolidating that remaining 200k.


                • #9
                  There is a middle ground option at first republic where you put 10% of principal into account and park it there. You would get a rate halfway between the 2.7 and 1.95, probably 2.35% or so. I would do that and consider the 10% down as part of your emergency fund.


                  There is another consideration which is that if you pay off your first republic loans in 4 years or less they will refund the interest you paid up to max of 2% of the principal (so $6k for you) back to you by issuing a deposit into your checking account. Make sure this is still true but it was this past spring.


                  So if I were you I would actually maybe look at 7 or 10 year rates since some of that interest is recoverable. Then be very strict and use all the extra monthly cash flow that leaves you (bc of reduced minimum monthly payments) to assault your remaining $200k. Once you annihilate that $200k reassess your first republic situation. If you have already paid $6k in interest then consider refinancing the first republic loan with another company. Get the first republic refund of your interest paid up to 2% of your principal, as well as any sign up bonus you can get from the new refinance company, and knock down the principal. Use whatever portion of the 10% principal on hand you had at FR that you feel comfortable knocking down the principal also. Then just pay that down aggressively. I think that is likely to get you your best results.


                  And in answer to ZZZs question the % of principal you have to keep on hand in the checking is not dynamic but is based on the loan balance at time of underwriting.


                  • #10
                    I would keep shopping rates.

                    Unless you have a need to keep $60k stashed, like Andrew said above, it's costing you about $3,900 a year to keep that parked.  Less if they pay you interest on it.

                    How much cash do you have saved?  I would be awful tempted to just write a check to your highest rate loan right now, go down to a minimum of cash on hand of whatever you're comfortable with.


                    • #11
                      We were in a similar situation as you. Wanted to refi with first republic but they couldnt get my wife refinanced till her actual pay stubs started coming unless I co-signed. I ended up cosigning for my wife and went with commonbond at 2.49% variable rate after autopay. They refi over 300k at commonbond.