Variable loan question

[pneumodoc]

Fiancé has a fixed rate student loan through earnest, looking to refi again even though it’s only been 6 months because rates have dropped due to COVID. She was quoted 3.13 for variable and 3.20 fixed, which seems small, but I’ve been seeing others who are getting rates below what is quoted because the fed rate is so low. How exactly do these variable rates get set once you sign up? Is it possible it would go down from the 3.13 she was quoted? I know it can go up once interest rates rise, but that seems unlikely at least for the next year or two, at which time we would refi again (early and often). Thanks!

[8arclay]

Variable rates adjust monthly based on the national rates. I had a 5 yr variable, started at about 3%. 2.5 years later when I paid them off, the rate was under 0.5%.

[Tim]

Variable rates adjust monthly based on the national rates. I had a 5 yr variable, started at about 3%. 2.5 years later when I paid them off, the rate was under 0.5%.

The spread between fixed and variable is compressed. Once the rate slope changes, the increase are magnified and the difference is much larger. Base rate + x is the rate. Picking interest rate tops and bottoms difficult.

[pneumodoc]

The spread between fixed and variable is compressed. Once the rate slope changes, the increase are magnified and the difference is much larger. Base rate + x is the rate. Picking interest rate tops and bottoms difficult.

So then if she gets a rate of 3.13, that means it's Libor + x=3.13% right? So does that mean with LIBOR being as low as it's been in a while, that it can only realistically go up over time? Target is to pay off in 5 years, so 3.2% is great, but hearing of folks having rates <2% is insane and worth chasing in the short term if that's possible.

[Tim]

So then if she gets a rate of 3.13, that means it's Libor + x=3.13% right? So does that mean with LIBOR being as low as it's been in a while, that it can only realistically go up over time? Target is to pay off in 5 years, so 3.2% is great, but hearing of folks having rates &lt;2% is insane and worth chasing in the short term if that's possible.

That is the way I read it. A current rate of 3.13 has no chance of going down to the low rates anecdotally quote. They got the 3.13 at a lower spread. I could be wrong, but that is the way bank loans work. Open for different explanations.

[endo4jc]

So then if she gets a rate of 3.13, that means it's Libor + x=3.13% right? So does that mean with LIBOR being as low as it's been in a while, that it can only realistically go up over time? Target is to pay off in 5 years, so 3.2% is great, but hearing of folks having rates <2% is insane and worth chasing in the short term if that's possible.

I refinanced with Earnest in February 2020 to a variable 5 year. At the time with the autopay discount, my interest rate was 1.85%. Then COVID hit and the Fed dropped the FFR to near 0%. Over the next couple of months, my interest rate fell to its current value of 0.41%. Honestly, it was just fortuitous timing. I don’t think it’s possible to get this low in the current environment as the federal funds rate cannot get much lower (I think it’s currently 0.25%).

[pneumodoc]

Thanks everyone. Decided to do the fixed rate (5 yr, 8 mo @3.26, 3k/month payment) vs. doing variable rate @ 3.2%. Just didn't seem worth the risk when it appears like thee interest rate environment won't go down much from here.