A few weeks ago, I reported that I was considering refinancing with Sofi. I decided to go through with it. My last remaining loan was an 8%, fixed-rate, 10-year loan. I’ve refinanced it into a 3.66%, variable rate, 5-year loan.
Why I Did It
Simple. My interest rate has been slashed from 8% to 3.66%, or less than half. Even though Mr. DebtFreeJD and I plan to pay this loan off quickly, that will still save a good chunk of change over the next few months. And Mr. DebtFreeJD and I like to save money.
In addition, my old servicer was my law school itself. This was annoying, since I made all my payments through the mail and had trouble keeping track of what was due when. My new servicer – TruStudent – has an easy-to use electronic platform. I like it when things are simpler. This is simpler.
Finally, Sofi has a lot of nice perks. I signed up through a friend, so we both got a hundred bucks. They’re sending me a free pie. Applying for the refinance itself was not a big deal – I just sent in various identity documents, plus information about the loan. All in all, it took about two weeks, and I think it would have been faster if my old servicer had an easy-to-use electronic interface.
The big one, of course, is that the loan is variable-rate, meaning it is tied to the London Interbank Offer Rate, or LIBOR. So if LIBOR goes up, my loan rate will go up. I’m not too worried about this for two reasons. First, Mr. DebtFreeJD and I intend to pay off this loan very speedily. Second, my loan rate is capped at 9%, meaning that even if LIBOR does head for the skies, my loan rate won’t be that much higher than my current rate.
In addition, my repayment period is now five years, instead of ten, so there is more “due” every month. Again, that’s OK with us — we plan to pay way in excess of what’s due — but it certainly would not be good for everyone.
If You Are Thinking About Refinancing Your Loans
I say think carefully. It’s definitely not the right idea for everyone, and you’ll want to carefully read the terms and conditions of any lender that you’re considering refinancing with. You’ll want to find out things like:
- Can I defer my loans if I lose my job or something else bad happens?
- How do the terms of this loan compare to the terms of my other loans? So, for example, if you’re eligible for loan forgiveness because you have federal loans, you’ll want to take that into account.
- This is morbid, but what happens to this loan if I die?
- If the loan has a lower rate because it has a shorter repayment period, can I realistically make my monthly payments?
- How comfortable am I with risk? Is a variable rate or fixed-rate loan better for my risk tolerance?
This are all very important questions, and ones you’ll want to think hard about. For me, however, I probably should have refinanced even earlier – I was held back by inertia, not because it wasn’t a good option.
One Final Note
If you do refinance with Sofi, find a friend who refinanced with them. Like I said, you’ll both make a hundred backs. I now have a referral code, but I’m not posting it here, and I don’t want to refer you – otherwise, how would you know that this post reflects my actual feelings on the refinance process? Like I said: I’m glad I did it, and I hope this gives you some good information about whether you want to consider doing the same.