Loan refinancing Forum

[ben4848]

I saw this in an ad on ATL and it was the first time I'd heard of this. Seems you can refinance to 5.74, which is significantly less than the 8% or so I'm paying on gradplus. Presumably, this is because my credit risk is much better now than it was when I started law school.

Do folks do this? https://www.sofi.com/loan-refinance.php ... _REFI_0613

[NotMyRealName09]

5.74% if you agree to reduce your term to five years, which will up your monthly payment significantly......

[KD35]

I'm not necessarily experienced in finances, but with those terms on the 5 year refinance, it'd be worse than the 8% cuz you can take the extra money at your current rate you aren't using to pay back interest and invest it for a better return than the refinanced 5.74%.

But correct me if I'm wrong.

[Kronk]

I'm not necessarily experienced in finances, but with those terms on the 5 year refinance, it'd be worse than the 8% cuz you can take the extra money at your current rate you aren't using to pay back interest and invest it for a better return than the refinanced 5.74%.

But correct me if I'm wrong.

This is almost always the case though. Some people just want to get rid of their loans fast and don't care about the investment upside.

[dstars823]

if you refi 200000k to 5.74% over 5 years then your average monthly payment should be about 3842.00 per month

So
3842.00 x 60 = ~231000 over 5 years

You would save a lot of money in interest compared to paying 7.9 however you would almost absolutely need biglaw to service the debt unless you win the lottery. Not a bad option for someone who wouldnt have any other dependants other than themselves. Saves you close to 12000-13000 in interest payments alone over 5 years.

[Danger Zone]

3842.00 per month

Even on a big law salary, that's an absurd fixed monthly expense.

[dm52013]

10 year is still at 6.125- which feels less usury than 7.775...

[dstars823]

3842.00 per month

Even on a big law salary, that's an absurd fixed monthly expense.

It would definitely be tough thats for sure, but not impossible, take home in NY after taxes on 160k is about 8000 per month, if you take out 401k and health lets say youre around 7200 a month, well take out 3800 and youre left with 3400 per month for living, which im sure is doable. Obviously you wont be living models and bottles but its respectable

[ben4848]

I'm not necessarily experienced in finances, but with those terms on the 5 year refinance, it'd be worse than the 8% cuz you can take the extra money at your current rate you aren't using to pay back interest and invest it for a better return than the refinanced 5.74%.

But correct me if I'm wrong.

This is almost always the case though. Some people just want to get rid of their loans fast and don't care about the investment upside.

I don't have any risk free investments at better than 5.74 that I know of. Adjust for risk, and I'm skeptical.

[Bronte]

if you refi 200000k to 5.74% over 5 years then your average monthly payment should be about 3842.00 per month

So
3842.00 x 60 = ~231000 over 5 years

You would save a lot of money in interest compared to paying 7.9 however you would almost absolutely need biglaw to service the debt unless you win the lottery. Not a bad option for someone who wouldnt have any other dependants other than themselves. Saves you close to 12000-13000 in interest payments alone over 5 years.

Even if you have a big law gig, it would be very unwise to refinance to a mandatory 5-year term. Although it gets exaggerated on this site, one could easily get forced out of big law before then and have to take a substantial salary cut. I don't think the added risk of default is worth the interest rate reduction.

I'm not necessarily experienced in finances, but with those terms on the 5 year refinance, it'd be worse than the 8% cuz you can take the extra money at your current rate you aren't using to pay back interest and invest it for a better return than the refinanced 5.74%.

But correct me if I'm wrong.

This is almost always the case though. Some people just want to get rid of their loans fast and don't care about the investment upside.

I'm not sure what you guys are getting at here.

KD35 seems be saying that reducing your rate from 8.0% to 5.7% is unwise because then your best investment will be in the capital markets rather than in paying down your loans. This misunderstands the issue. It is true that, if you can earn more in the market, adjusting for risk, than you save by paying off your loans, it can make sense to only make the minimum payments on your loans. This does not, however, mean you should not get an interest rate reduction if you have the chance.

Kronk seems to be saying that at either 8.0% or 5.7% your better bet is to invest in the capital markets. We've had flame wars over this before on here, but I don't think this is the case. Paying down your loans gives you a risk-free, tax-free return equal to your interest rate. That's hard to beat at 8.0% or 5.7% but especially at 8.0%.

[Kronk]

I didn't say in capital markets necessarily. I just meant real estate. In general, it's financially unwise to make huge payments to get a principal down quickly. It's usually better to stretch it out over a period of time if it will give you a good chunk of savings to, say, buy a home or osmething.

[Bronte]

I didn't say in capital markets necessarily. I just meant real estate. In general, it's financially unwise to make huge payments to get a principal down quickly. It's usually better to stretch it out over a period of time if it will give you a good chunk of savings to, say, buy a home or osmething.

I disagree. I would say that, at a minimum, the proposition that it's financially unwise to make large principal payments quickly is highly controversial. We've had 10-page threads on this site arguing about it. But it's hard to deny that you should route all disposable income to loan payments unless the expected return on your next best investment, be it real estate, the capital markets, or a horse-breeding business, is higher than your interest rate, adjusted for taxes and risk. The exception is in order to build a rainy day fund for emergencies.

[ben4848]

Is there any possibility it affects LIPP eligibility? Suppose you lose job and take a rotten job, you'd want to be LIPP eligible.

ETA: SFS office says that if refinance at less than 10 years it would affect. Presumably that is because the LIPP payment is only supposed to cover on a 10 year plan. But they ought to at least give you what you would get on the 10 year plan.

[nealric]

I'm not necessarily experienced in finances, but with those terms on the 5 year refinance, it'd be worse than the 8% cuz you can take the extra money at your current rate you aren't using to pay back interest and invest it for a better return than the refinanced 5.74%.

But correct me if I'm wrong.

I think you are wrong in this case. An 8% return is extremely high. You also have to take taxes into account on that return. The inputed return on student loan payments is tax free and risk free. To beat student loan payments on grad plus loans, your actual return would need to be near 10%. If you can get a 10% annual return over 10 years in the market, you should be running a hedge fund.

[guano]

I didn't say in capital markets necessarily. I just meant real estate. In general, it's financially unwise to make huge payments to get a principal down quickly. It's usually better to stretch it out over a period of time if it will give you a good chunk of savings to, say, buy a home or osmething.

There is a lot of wrong, and a sliver of boomer good sense
The savings to buy a home thing is about of a flame, because FHA only requires 5% down, and even after MIP is still significantly cheaper than student loans.
Welcome to ITE

[KD35]

if you refi 200000k to 5.74% over 5 years then your average monthly payment should be about 3842.00 per month

So
3842.00 x 60 = ~231000 over 5 years

You would save a lot of money in interest compared to paying 7.9 however you would almost absolutely need biglaw to service the debt unless you win the lottery. Not a bad option for someone who wouldnt have any other dependants other than themselves. Saves you close to 12000-13000 in interest payments alone over 5 years.

Even if you have a big law gig, it would be very unwise to refinance to a mandatory 5-year term. Although it gets exaggerated on this site, one could easily get forced out of big law before then and have to take a substantial salary cut. I don't think the added risk of default is worth the interest rate reduction.

I'm not necessarily experienced in finances, but with those terms on the 5 year refinance, it'd be worse than the 8% cuz you can take the extra money at your current rate you aren't using to pay back interest and invest it for a better return than the refinanced 5.74%.

But correct me if I'm wrong.

This is almost always the case though. Some people just want to get rid of their loans fast and don't care about the investment upside.

I'm not sure what you guys are getting at here.

KD35 seems be saying that reducing your rate from 8.0% to 5.7% is unwise because then your best investment will be in the capital markets rather than in paying down your loans. This misunderstands the issue. It is true that, if you can earn more in the market, adjusting for risk, than you save by paying off your loans, it can make sense to only make the minimum payments on your loans. This does not, however, mean you should not get an interest rate reduction if you have the chance.

Kronk seems to be saying that at either 8.0% or 5.7% your better bet is to invest in the capital markets. We've had flame wars over this before on here, but I don't think this is the case. Paying down your loans gives you a risk-free, tax-free return equal to your interest rate. That's hard to beat at 8.0% or 5.7% but especially at 8.0%.

Obviously overall an interest rate is better if the length of repayment was equal, but it wasn't. That's what I was trying to get.

[Anonymous User]

wait.............we can do this?

Is there any way we can toss in bar prep loans too? I was told once that we couldn't.

[Anonymous User]

What about refinancing at a variable rate? V20 in a non-NY primary market. I bought a house already, so I don't have to save for a down payment, and I can do this while still putting away enough of a rainy-day fund, so those aren't concerns. I'm planning to pay off all my $120k in loans in the next 3-4 years anyway. Other than the obvious risk that LIBOR goes up substantially, is there anything else to consider? A sub 4% rate seems very tempting. What if I did it just for my $50k of loans that are at 7.9%?

[Anonymous User]

I was looking into SoFi but was informed that you need to pass the bar to be approved. Study hard everyone!

[Old Gregg]

bronte: no need to say "capital markets." we all know you're smart. you can just say "stocks."


everyone else:

re: sofi, it's very tempting for sure and smart to think about ways to pay off debt more quickly. but keep in mind that under pretty much any scheme in which your federal loans are taken over by a private lender, you would be unable to avail yourself of any "relief" offered by the government, be it forms of relief that exist now and those that could arise in the future.

in other words you can throw PAYE out of the picture. and i know cynics like to joke that boomers won't pass anything more aggressive, but you never know and it's worth it to be patient for at least a few years to see where legislation is heading.

as an aside, one method you can try is to get the loans refinanced under an umbrella of a mortgage, but there are a lot of factors involved and i strongly recommend against it if you have more than $100k already in the hole.

[quakeroats]

Kronk seems to be saying that at either 8.0% or 5.7% your better bet is to invest in the capital markets. We've had flame wars over this before on here, but I don't think this is the case. Paying down your loans gives you a risk-free, tax-free return equal to your interest rate. That's hard to beat at 8.0% or 5.7% but especially at 8.0%.

PAYE and IBR complicate things significantly. For example, it's not hard to get the present value of all loan payments below the total amount borrowed, even with a 150k+ salary the whole time. Someone should really put together a model for this...

[Bronte]

bronte: no need to say "capital markets." we all know you're smart. you can just say "stocks."

You're right. Next time I'll say "stocks and bonds." Fair compromise?

Kronk seems to be saying that at either 8.0% or 5.7% your better bet is to invest in the capital markets. We've had flame wars over this before on here, but I don't think this is the case. Paying down your loans gives you a risk-free, tax-free return equal to your interest rate. That's hard to beat at 8.0% or 5.7% but especially at 8.0%.

PAYE and IBR complicate things significantly. For example, it's not hard to get the present value of all loan payments below the total amount borrowed, even with a 150k+ salary the whole time. Someone should really put together a model for this...

Interesting. I will think about it. The x-factor is the political risk, which isn't susceptible of modeling.

[Joe Quincy]

Anyone who thinks you can beat 5.7% reliably, even in real estate, is clearly not factoring in the effect of tax on that return. Paying 8% interest is much better than an 8% return, particularly in a BigLaw tax bracket.

Not to mention, some of the attractiveness of holding real estate (other than your primary residence) is gone at a BigLaw salary because you lose the ability to offset income with the passive activity (the allowance phases out).

[Old Gregg]

Anyone who thinks you can beat 5.7% reliably, even in real estate, is clearly not factoring in the effect of tax on that return. Paying 8% interest is much better than an 8% return, particularly in a BigLaw tax bracket.

Not to mention, some of the attractiveness of holding real estate (other than your primary residence) is gone at a BigLaw salary because you lose the ability to offset income with the passive activity (the allowance phases out).

I don't think anyone here was thinking of or is in a position to acquire investment-level real estate...

[Joe Quincy]

Anyone who thinks you can beat 5.7% reliably, even in real estate, is clearly not factoring in the effect of tax on that return. Paying 8% interest is much better than an 8% return, particularly in a BigLaw tax bracket.

Not to mention, some of the attractiveness of holding real estate (other than your primary residence) is gone at a BigLaw salary because you lose the ability to offset income with the passive activity (the allowance phases out).

I don't think anyone here was thinking of or is in a position to acquire investment-level real estate...

Someone mentioned real estate up thread. And FWIW, you can acquire investment-level real estate with little money down. I know people who walked away from rental property closings with no money down, some equity, and a rental stream. It all depends on how the deal is structured.