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  • Loan Refinance Opinion

    Hi Everyone
    Thank you so much to anyone who is willing to read this and help give me advice in such a scary uncertain time for us all. I am a private practice partner pediatrician 4 years out of residency. I am currently on a 10 year private student loan plan just refinanced in October with 170k in Student loans total. A few weeks ago I began another refinance as my interest rate had dropped from 4.44% to 3.63% with the same bank and term. In light of the current economic crisis I am wondering if I should choose a longer term for a higher interest rate but lower payment in order to save cash before I finalize this refinance. The 20 year is 4.53% now. I am getting nervous regarding my income as our office has been a ghost town due to the situation and we are concerned about our finances enough to have already had to cut everyone’s salary (staff and providers) by 25% only 2 weeks into this crisis. I don’t know what to do as I want so badly to get out of debt and hope this situation will be temporary (who knows of course). We have an emergency fund of 2 months expenses saved. I have already adjusted our monthly budget down by 25% so we do not have to dip into the emergency fund at least yet, decreased 401k down to 5% for my employer match rather than 15% and stopped 529 contributions, etc. My husband is a hospital employed nurse so should have very good income reliability. Hope this may help someone else in the same position too, and thank you again for your help.
    Praying for us all.

  • #2
    Definitely would recommend a 6 month or larger emergency fund.

    ✓✓✓ On adjusting down your spending. Too many people don’t do this.

    I paused when you said you decreased your 401k contributions. As long as you are getting the maximum match…

    I like longer terms for flexibility on mortgages & loans, if there is no prepayment penalty. But my initially reaction on the interest rate difference gave me pause as well.

    What are your household income & expenses? Specify if this is pre or post 25% cut.

    What would your loan payments by under the 10 & 20 year terms? If you know.
    "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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    • #3
      Our monthly income was $14,500 after taxes before this change, ($10,250 of which was my paycheck) . Our expenses were just about the same as this, as we were putting as much as possible toward debt. The payment for the 20 year student loan is $1,077 and the 10 year is $1,689. Both are below my current payment of $1,783 which I can afford currently even with my 25% decrease in income/spending. I would really like to lock in the lower interest rate for the 10 year, but I am unsure if that is a good idea because that decreases my flexibility of that $600/month. There are other things I could cut if needed like vacations. So far we have only cut income for one pay period, but who knows how long we may need to continue this. Yes I am still getting the max match on my 401k, and hope to be able to increase this contribution later in the year to get back to maxing it out. Thanks for your help.

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      • #4
        I hate being backed into a corner with the 10 year higher payment. But the interest rate difference is not negligible for me.

        If you could make concessions to cover the 10 year payment if things turned (further) south, **&** can build up your emergency funds, I’d go with the 10 year.

        Otherwise I’d buckle & take the 20 year for piece of mind, but I’d aim to pre-pay it off within 10 years anyways. Double check there is no prepayment penalty.

        I'll cross my fingers for you that the much smarter folks here will chime in.
        "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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        • #5
          Cash is king, and provides both peace of mind and financial stability in turbulent times.

          Lower your student loan payments and cut spending.

          Slashing your 401k contribution is okay IF you will still be able to max it out this year after a few months hiatus. Otherwise, keep as is.

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