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  • Refinancing refinanced loans?

    I apologize if this is a dumb question.

     

    I am going to refinance my loans at the end of the year.  If I go with a variable interest rate and then two years into my payments that variable rate increases above other possible lenders rates, am I able to refinance again with the different company?  It seems too simple in my mind that they would allow this because then variable rates would always be a no brainer but I haven't read anywhere that you can't other than the risk of possible early termination fees.

    I do not really see a risk because when I graduate my loans:income will be about 1:1. After two years my income should be double my loans so I would be a better candidate for lower interest rates from the refinancing companies (unless the market goes crazy and fixed loans jump up tremendously).  I just am not sure if I am missing something really simple or if I am thinking about this incorrectly.

    Thank you for your help.

     

  • #2
    You can refinance p much any number of times that you're comfortable authorizing a credit inquiry for (which slightly lowers your score). If your time horizon is 2 years, then you're likely better off with the variable rate. Even if it rises to higher than what the fixed rate would have been, it's not likely to do so quickly, and by that point you'll owe less principal, so less paid over the life of the loan.

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    • #3
      Not a dumb question, but also not a no-brainer. You would have to figure in the cost of additional refinancing and how that would negatively impact the overall positive (or negative) impact of moving to a different lender/contract, along with the credit inquiries referenced by @DMFA above.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4




        I am going to refinance my loans at the end of the year.  If I go with a variable interest rate and then two years into my payments that variable rate increases above other possible lenders rates, am I able to refinance again with the different company?  It seems too simple in my mind that they would allow this because then variable rates would always be a no brainer but I haven’t read anywhere that you can’t other than the risk of possible early termination fees.

        I do not really see a risk because when I graduate my loans:income will be about 1:1. After two years my income should be double my loans so I would be a better candidate for lower interest rates from the refinancing companies (unless the market goes crazy and fixed loans jump up tremendously).  I just am not sure if I am missing something really simple or if I am thinking about this incorrectly.

        Thank you for your help.

         
        Click to expand...


        Variable rate loans include a base rate of interest (set according to your risk as a borrower), plus a market rate interest (such as LIBOR) which varies according to what that market rate of interest does.  The lender is not arbitrarily raising or lowering your variable rate.

        So, if you're the same borrower you were before, similar income, similar credit history, similar debt, and rates go up, it's going to be difficult to find a better rate to refinance to.  You're the same risk you were before, and market rates are up across the board.

        However, if as you mention, your stats significantly improve in the meantime (more income, less debt, longer credit history), you should be able to find a better rate by refinancing, even with the same company.  The market rate will still be the same, but your base rate may be lower than it was before.

        Also, read your note to determine if there are prepayment penalties.  That's pretty uncommon in the student loan game, but read your note for peace of mind.

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        • #5
          I just realized you were talking about student loans, not a mortgage (didn't pay attention to the category heading)! Sorry, should be no additional cost to refinance.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Refinance as much as you wish. We refinance once a year. The down-side to variable rates is that if interest rates jump you will not be able to refinance at a lower rate. In my mind variable rate is good for short term loans where one can easily pay the loan off quickly if rates jump.

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            • #7
              Yep. I folded a SoFi loan into First Republic Bank. Felt kinda silly moving a loan only at 3.3ish (variable) into a 2.25 fixed for a relatively small loan amount (also a bunch of other loans were folded into this).

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              • #8
                Yeah, I'd recommend not being too shy about refinancing once your rates start climbing.  It's usually a pretty easy process (and some will give you a refinance bonus).  I did a few times with variable loans so I could keep my rates down below the fixed range, it worked well.

                The one thing I am unsure about is whether you have to give back the refinance bonus if you leave that bank too early, say < 1yr.  Otherwise, with all of the banks out there offering signup bonuses, you could theoretically refinance every few months and make a few thousands dollars.  Definitely not recommending this as your credit would take a hit, but always something I wondered about.

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                • #9
                  Why do some of you refinance multiple times?

                  Are you going from a variable rate loan in which the rate rises and you decide to re-finance to a fixed rate out of fear of continuing rise?

                  You find a better variable rate with a different lender?

                  You previously had a 10 year term and now you're going to a 5- or 7-year term for better rates?

                  Student loan refinance churning for new refi perks?

                  Do you just periodically check refinancing options as your loan balance declines and income goes up?

                   

                  Sorry for the laundry list. I am looking to refinance, and I'm just trying to get a sense of what I might want to do in the future..

                  Comment


                  • #10




                    Why do some of you refinance multiple times?

                    Are you going from a variable rate loan in which the rate rises and you decide to re-finance to a fixed rate out of fear of continuing rise?  Yes.

                    You find a better variable rate with a different lender?  Yes.

                    You previously had a 10 year term and now you’re going to a 5- or 7-year term for better rates?  Yes.

                    Student loan refinance churning for new refi perks?  That's a nice bonus, but not the goal.

                    Do you just periodically check refinancing options as your loan balance declines and income goes up?  Yes.

                     

                    Sorry for the laundry list. I am looking to refinance, and I’m just trying to get a sense of what I might want to do in the future..
                    Click to expand...


                    My first refi was to get out of the horrible federal 6.8% deal, 10-year plan with increasing payments.  Financed to a variable rate loan.  Want to say it was about 3.7%, 15 year.  15 year rate was better than the 10 year rate due to debt-to-income calculation.  I think there was a $200 bonus or so.  All of a sudden we went from barely making a dent to significantly paying down principal with each payment, and payments were smaller than before, too.

                    Fast forward a couple years, rate had adjusted up a few times into the 4s.  We were looking at the uncertainty of possibly extending residency with a fellowship, and the fed had actually signaled a few quarter point increases for the first time in recent history.  Income was a little higher than before (PGY4 vs PGY2).  So we refi'd to a 5-year fixed rate of 4.6%, which was .2 or .3% more than our variable rate loan.  I think there was a $300 bonus, through WCI if I recall.

                    Fast forward about a half a year, landed the attending job, no fellowship, refi'd yet again to a 5-year 2.81% variable loan.  Goal is to have the loan paid off in ~12mos but it might be plus or minus a few months depending on if we make backdoor roth contributions, how extravagant of vacations we go on, etc.  Refi was with the same company, so no bonus, but I didn't ask (probably should have).

                    That's my history.  With every refi deal I've seen, there's no closing costs or prepayment penalties, so you could do this every few months if you wanted to and churn bonuses.  The loans take a few months to fund usually, and I'd imagine it would be difficult to refi before your last refi funded, so realistically you might only be able to do this maybe 3x per year.  I'm not sure if doing 3 or 4 refi's a year would do anything to your credit score but it'd be an interesting endeavor, not sure if it's worth the effort though.

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                    • #11




                      Why do some of you refinance multiple times?

                      Are you going from a variable rate loan in which the rate rises and you decide to re-finance to a fixed rate out of fear of continuing rise?

                      You find a better variable rate with a different lender?

                      You previously had a 10 year term and now you’re going to a 5- or 7-year term for better rates?

                      Student loan refinance churning for new refi perks?

                      Do you just periodically check refinancing options as your loan balance declines and income goes up?

                       

                      Sorry for the laundry list. I am looking to refinance, and I’m just trying to get a sense of what I might want to do in the future..
                      Click to expand...


                      All of the above.  The second it becomes more advantageous to do a different rate or term for any reason, do it...and take the $300 each time.  I wouldn't plan on it being a new income stream, though.

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                      • #12
                        Thanks for the replies. All of my loans are federal at 6.8% unfortunately, so I'm looking to refinance after I get a couple attending paychecks in the next month or two for "proof of income." From what I've read on the refi company sites it appears you can still deduct interest paid on these loans when doing your taxes. Is that everyone's experience?

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                        • #13
                          It depends on your income. It phases out completely at MAGI of $80k for singles and $160k for married filing jointly. So as a physician you will not get to deduct a cent because of it. And this applies to any student loans, not just privately refinanced ones.

                           

                          https://www.irs.gov/publications/p970/ch04.html

                          Comment


                          • #14




                            It depends on your income. It phases out completely at MAGI of $80k for singles and $160k for married filing jointly. So as a physician you will not get to deduct a cent because of it. And this applies to any student loans, not just privately refinanced ones.

                             

                            https://www.irs.gov/publications/p970/ch04.html
                            Click to expand...


                            Not only that, but you only get to deduct $2,500.  It is an above-the-line deduction, so it does reduce your taxable income (and hence your monthly payment) if you're still on income-driven repayment, but that wouldn't matter for a private refinance.

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                            • #15
                              It's still student loan interest.  May or may not be deductible for you based on your income.  If you have a partial year of income, you might get to deduct.

                              Also, some lenders will refi you with a contract and no paystubs.  Worth looking into.  Have you started your job yet?  Every month of interest counts.

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