July 19, 2021 – Loan rate slip – Forbes Advisor
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The average interest rate on refinanced student loans fell last week. For many borrowers, rates remain low enough to make refinancing a good option.
From July 12, 2021 to July 16, 2021, the average fixed interest rate on a 10-year refinance loan was 3.50% for borrowers with a credit score of 720 or higher who prequalified in the mortgage market. student loans from Credible.com. On a five-year variable rate loan, the average interest rate was 2.90% among the same population, according to Credible.com.
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Fixed rate loans
The average fixed rate on 10-year refinance loans last week fell 0.15% to 3.50%. The previous week, the average stood at 3.65%.
Because fixed interest rates remain stable throughout the life of a borrower’s loan, it is possible to lock in a rate that is significantly lower than what you would have received at the same time last year. The average fixed rate on a 10-year refinance loan at this time last year was 4.28%, 0.78% higher than the current rate.
A borrower who refinances $ 20,000 in student loans at the current average fixed rate would pay about $ 198 per month and about $ 3,733 in total over 10 years, according to the Forbes Advisor student loan calculator.
Variable rate loans
Average variable rates on five-year refinancing loans edged down last week, from 3.05% to 2.90% on average.
Variable interest rates fluctuate over the life of a loan depending on the index to which they are linked and market conditions. Many refinance lenders recalculate the rates monthly for borrowers with variable rate loans, but they usually limit the level at which the rate can go – lenders can set a limit of 18%, for example.
Let’s say you refinanced an existing $ 20,000 loan into a five-year loan with a variable interest rate of 2.90%. You would pay around $ 358 on average per month. You would pay approximately $ 1,509 in total interest over the life of the loan. Keep in mind that since interest is variable, it can go up or down from month to month.
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Fixed rate loans vs variable rate loans
One of the big goals of refinancing student loans, for many borrowers, is to reduce the amount of interest paid. And that means getting the lowest possible interest rate.
You may find that variable rate loans start off lower than fixed rate loans. But because they are variable, they have the potential to increase in the future.
Fortunately, you can reduce your risk by paying off your new refinance loan quickly, or at least as quickly as possible. Start by choosing a short-term loan with a manageable payment. Then pay extra whenever you can. This can hedge your risk against possible rate increases.
Whether you choose a fixed or variable rate loan, it’s important to compare the rates of several lenders to make sure you don’t miss out on any savings. You may be able to benefit from interest rate reductions by opting for automatic payments or having an existing relationship with a lender.
When to refinance student loans
Most lenders require borrowers to graduate before refinancing, but not all, so in most cases, wait to refinance until you graduate. You will also need a good or excellent credit score and a stable income in order to access the lowest interest rates.
If you have insufficient credit or your income is not high enough to qualify, there are several options available to you. You can wait to refinance until you have accumulated credit or have sufficient income. Or, you can get a co-signer. Just make sure the co-signer knows they’ll be responsible if you can’t pay off your student loan. The loan will appear on their credit report.
Before choosing to refinance, calculate your potential savings. It is important to make sure that you are saving enough to justify refinancing. Shop with several lenders for rates and take your credit score into account when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.
Refinancing student loans: other things to consider
There are a few things to keep in mind when refinancing a federal student loan into a private student loan. For starters, you will lose access to some of the benefits offered by federal student loans. For example, you will no longer have access to income-based repayment plans or deferral and forbearance options.
If you’re thinking about refinancing federal student loans, first make sure that you probably won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You still have the option of refinancing only your private loans, or only a portion of your federal loans. Since fixed interest rates on federal loans are generally relatively low, you may also decide that refinancing would not result in substantial savings.