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Rate hikes and variable vs fixed loan refi

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  • Rate hikes and variable vs fixed loan refi

    Just read an article claiming markets are pricing in 5 quarter point rate hikes in 2022. Obviously nobody knows exactly what'll be in the future.

    My question is about the mechanics of a variable vs fixed rate refi. If you get a variable loan and rates go up, how quickly would the rates on the loan change after the LIBOR rates are hiked? Is it directly proportional or can the refi companies have some fudge factor wrt to the variable rate?

    Given the environment we are in, is it still likely variable will come out ahead over the course of a loan?
    Last edited by LazerBeams; 01-30-2022, 04:40 PM.

  • #2
    Can't comment on your first question, but on your second, it is so hard to predict what will happen to rates. It does look like they are going to continue to move up as the economy improves. And in particular while inflation is ~7% right now.

    Going off of the standard WCI advice from variable refinancing probably holds though -- don't do a variable unless you're paying your loan off in less than five years.
    Helping student loan borrowers manage their student loans. StudentLoanAdvice.com. [email protected]

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    • #3
      It'll be based on SOFR, not LIBOR anymore. Don't ask me to explain the difference.

      Get the fixed rate. There aren't fees for refinancing multiple times, so if it rates go down, refinance again. The biggest issue will be credit checks, so that's the main deterrent to multiple refinances.

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