greenishcanParticipantStatus: PhysicianPosts: 1Joined: 06/10/2019
I have a colleague who is interested in refinancing a IBR type plan to a private lender as they finish residency and enter the attending world.
He was quoted a change from high 6’s to low 6’s in interest.
I haven’t explored the process that much but one thing came to my mind and couldn’t find many good threads after googling around:
1) Does refinancing with a private lender trigger any capitalization? Or is that a concept specific to federal loans?
E.g., will the interest balance remain the same and adopt the new lower interest rate
do they get a new principal calculated and the interest rate is calculated off that?
2) The reduction in the interest rate doesn’t seem that great, I was personally thinking he should strive for a lower rate if they’re gonna do it (like mid to low 5’s if possible). Any recommendations for lenders from people who have gone through the process?June 10, 2019 at 10:43 am MST #220705DreamgiverParticipantStatus: PhysicianPosts: 866Joined: 03/09/2017
1. Yes, any outstanding interest is rolled into the new loan and becomes part of the principal
2. Start here: https://www.whitecoatinvestor.com/student-loan-refinancing/
Different lenders use different algorithms so it’s hard to tell exactly what rates you end up with without applying. I personally had good luck and service with Earnest. I agree that 6% sounds on the high side. I ended up doing variable when I first got out of residency to take advantage of the lower rates when the principal was the biggest and refinanced every 6-12 months to keep it low, locked at 3% about a year ago for the final 18 payments.June 10, 2019 at 11:08 am MST #220730MFCParticipantStatus: DentistPosts: 5Joined: 06/09/2019
After you read up on the article from Dreamgiver, I would look into REPAYE. I have REPAYE and my effective interest rate is in the low 3%. I have looked into refinancing with private sector, and the quotes I got were all higher than my effective interest rate.Faithful StewardParticipantStatus: Financial Advisor, Small Business OwnerPosts: 516Joined: 06/12/20171) Does refinancing with a private lender trigger any capitalization? Or is that a concept specific to federal loans?Click to expand…
Yes, when you refinance, you will be borrowing the amount necessary to pay off your loan principal and any unpaid accrued interest. So, in essence, you are capitalizing your interest when you refinance.2) The reduction in the interest rate doesn’t seem that great, I was personally thinking he should strive for a lower rate if they’re gonna do it (like mid to low 5’s if possible). Any recommendations for lenders from people who have gone through the process?Click to expand…
If those are the rates your colleague is being quoted, it sounds like their credit score is not the greatest or they haven’t received competitive rates. I generally suggest that the refinancing rate is at least 0.50% lower than their current rate.
Michael Peterson, CFP® | Faithful Steward Wealth Advisors
https://ProsperousPhysician.com | (717) 496-0900June 10, 2019 at 11:21 am MST #220738jhwkr542ParticipantStatus: PhysicianPosts: 1316Joined: 02/15/2016
That new quoted rate is really high for what most people refinance to. Most should be around 3-4%. Lower rates are for variable rates and for shorter terms. 20 year fixed probably is around 6%.June 10, 2019 at 11:21 am MST #220739