What to do with my loan?

[agranulocytosis]

Currently have a variable rate loan in repayment, current rate is sitting at 3.75%. With fed rates going up, I'm not sure how high my loan rates will go. They've stayed stable since the beginning of the year. I've looked into refinance options and the best rates I can get are 5% fixed right now for what I'm comfortable paying.

I've got a good rate right now now, but I don't want to get hit with the potential for a higher rate in the future.

What would you do?

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[RangerBob]

5% fixed is the best you’ve found? Have you looked into Laure Road? I got a pretty ridiculous rate from them. It was about a year ago when rates were lower, but they were beating everyone else’s rates by 1-2%.

Many variable rate loans can only go up so much at a time—might be worthwhile looking at your MPN.

 

[abolt18]

Currently have a variable rate loan in repayment, current rate is sitting at 3.75%. With fed rates going up, I'm not sure how high my loan rates will go. They've stayed stable since the beginning of the year. I've looked into refinance options and the best rates I can get are 5% fixed right now for what I'm comfortable paying.

I've got a good rate right now now, but I don't want to get hit with the potential for a higher rate in the future.

What would you do?

What are the terms of the loan? As noted above, there should be limitations on the maximum increase in interest rate and the frequency at which it can change. You would have to just run the numbers.

If the best fixed rate you can find is 5%, based on the terms of your current loan, what is the fastest the variable loan could possibly reach that same 5%? How many years is this loan for?

If this is a 5 year loan and it can only increase a maximum of 0.25%/quarter, it may still be worth riding out the variable loan. It would take 15 months before your rate could hit 5% and you may very well gave paid down a substantial portion of the principal during that time.

Alternatively, if it's a 10 year loan and the interest rate can increase by up to 1%/month (exaggerating for contrast), then I'd refinance to a fixed rate right now.

 

[agranulocytosis]

Apparently my rate is set at prime + 0.25%, adjusts quarterly Jan Apr Jul Oct. I looked further into my loan and found that the rate did increase by 0.25% from January, but I'm paying more than the monthly minimum so I didn't feel it.

After doing some reading, prime lending rate is generally 3% above fed funds rate. According to this, my rate could be as high 5.75 by end of the year if forecasts are correct. Not sure how long it will last.

With the 5% refi option, it will still be lower monthly than what I'm paying now. I doubt the 0.75% disadvantage would break my budget. But I'd be applying more to principal with the lower rate.

I guess the question is how long the rate will be that high, and if they will increase beyond what's forecasted. I'm thinking of holding on and riding out the rate hike.

Such a gamble.

 

[agranulocytosis]

Now 2nd--guessing. Sounds like inflation is here to stay a while. What to do, what to do...

 

[voxveritatisetlucis]

I guess the question is how long the rate will be that high, and if they will increase beyond what's forecasted. I'm thinking of holding on and riding out the rate hike.

Fed is not going to stop hiking. So it’s only going to keep going up. Market pricing in a substantial increase in rates.

Rate could be that high for a decade.

 

[agranulocytosis]

Fed is not going to stop hiking. So it’s only going to keep going up. Market pricing in a substantial increase in rates.

Rate could be that high for a decade.

I ended up taking the offer and refinancing for 5% fixed, still not bad compared to when my wife’s loans were 6% before we refinanced at 3.5 during the pandemic rate cut.