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Refinance for longer term for lower rate?

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  • Refinance for longer term for lower rate?

    If I am getting ~0.25 difference in a 5yr vs 7yr variable rate (3.5 vs 3.26), does it make any sense to go with the 7 year, and then just pay it off as I intend to in <5 years? Am I missing something about how this works?

     

    My other question is, my credit score is ~780 and the rates I've been pulling are not much better than 4.5% fixed. Is this the norm at this point?

  • #2


    If I am getting ~0.25 difference in a 5yr vs 7yr variable rate (3.5 vs 3.26), does it make any sense to go with the 7 year, and then just pay it off as I intend to in Click to expand...

    It depends on the closing/refi costs.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      If I am getting ~0.25 difference in a 5yr vs 7yr variable rate (3.5 vs 3.26), does it make any sense to go with the 7 year, and then just pay it off as I intend to in <5 years? Am I missing something about how this works?

       

      My other question is, my credit score is ~780 and the rates I’ve been pulling are not much better than 4.5% fixed. Is this the norm at this point?
      Click to expand...


      Here's what SoFi is giving for most-qualified applicants: [link]

      • 5 year: 2.615% var, 3.375% fixed

      • 7 year: 2.915% var, 4% fixed

      • 10 year: 3.415% var, 4.49% fixed


      There are factors other than credit score.  What are you and your spouse's (if applicable) income?

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      • #4
        I encountered this the first time I refinanced and saw it again when shopping the second time.

        Each lender has its own criteria, but in my case, debt-to-income was one of the larger criteria, and a longer-term improved the debt-to-income ratio enough that opting for a longer term instead of the minimum term actually made the interest rate lower.  I want to say it was DRB that was quoting me a better 7 year rate than their own 5 year rate.  10 year+ rate was higher.

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        • #5
          This is with CommonBond (and other common lenders) so as I understand it there are no costs baked in?

           

          My wife does not work and my income is 200k. I am looking at refinancing 240k worth of loan. I think the fact that I have worked at this job and rented our house for less than 2 years may be a factor (as well as renting in general?).

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          • #6




            If I am getting ~0.25 difference in a 5yr vs 7yr variable rate (3.5 vs 3.26), does it make any sense to go with the 7 year, and then just pay it off as I intend to in <5 years? Am I missing something about how this works?

             

            My other question is, my credit score is ~780 and the rates I’ve been pulling are not much better than 4.5% fixed. Is this the norm at this point?
            Click to expand...


            I just read that more closely.  If you're planning on paying it ahead of the amortization schedule, then the term doesn't matter; all that matters is the rate.

            Interest rate risk decreases with time, and interest accrual decreases with less principal (obv).  Hence a 5-year term, paid aggressively, benefits more from a lower variable rate.  Even if it does rise to above the fixed amount, the principal would be significantly lower by then, and total paid over the life of the loan would still be lower.

            Most of those refinance deals *should* have zero cost.  I know SoFi doesn't, well, at least not any that I was able to find when I scrutinized the terms...

            Hence if you've decided you're going to pay off over < 5 years, and the 7-year has a lower rate, then do the 7-year and just pay it like a 5-year.

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            • #7
              Guys, another question: can you refinance PART of a consolidated loan? As in 200k out of 300k?

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              • #8




                Guys, another question: can you refinance PART of a consolidated loan? As in 200k out of 300k?
                Click to expand...


                Yes. The only cost of refinancing a student loan is the time it takes you to handle it and the hard credit check that you'd get for applying for any other loan. No other costs at all major lenders.

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