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Should you refinance? 4 questions to consider.

Should you refinance?

Federal loan consolidation, student loan forgiveness…though some options are enticing, there are a lot of smoke and mirrors in the student loan industry. Check out our article to learn more about the options available to you.

By refinancing your student loans with Commerce, you could save thousands over the life of your loan. You’ll also have the option to lengthen your repayment period, which can alleviate current financial stress. Carefully consider your options before refinancing, as this decision will impact your financial picture for years to come.

Here are four questions to consider.

Question #1: How long do I want to take to pay off my loans?
If you refinance, you’ll have the option to extend your payment period. Most banks offer 10- to 20-year repayment plans, so if your finances are strained at the moment, choosing a longer repayment plan can alleviate some of the burden. However, if you choose this option, you’ll end up paying more in interest over the life of your loan. For example…

Consider this scenario: say you’re close to paying off one loan, but not so close on others (federal, private, or a mix of both). You could choose to pay the first loan off, which may improve your credit score, while making regular payments on your other loans or refinancing them. Lowering your debt-to-income ratio is one of the biggest benefits of paying off your loans as soon as possible. Carefully consider what’s most important to you before refinancing.

Question #2: Can I refinance private and federal loans together?
Yes, you can. If you want to extend your repayment period, or you find that you can receive a lower interest rate by refinancing, you can roll federal and private loans into one new loan.

Be sure to note that when you refinance with a private entity, you lose all benefits of your federal loan, like forbearance benefits and income-based repayment plans. Many doctors are attracted to Public Service Loan Forgiveness, and for good reason, but if you’re working toward this option, be sure to review the eligibility criteria. Currently, approval rates are extremely low, and no one who makes more than $200,000/year has been approved.

There’s an important distinction between federal consolidation and private refinancing. With federal consolidation, you combine all federal loans —you can’t include private loans – and receive an interest rate that is a weighted average of your existing federal loans. Private refinancing, on the other hand, allows you to combine ALL existing federal and private loans at a new, usually lower, interest rate.

Question #3: Which is better: a variable or fixed rate?
Most private lenders will take your credit score into account when determining your interest rate. The current offering may be lower than the one you’re paying currently, however that rate could skyrocket or plummet month-to-month. And if the rate goes up, your monthly payment will go up, too.

If you don’t like surprises, you may want to refinance with a fixed interest rate. If you choose this option, your interest rate will stay the same throughout the life of your loan, regardless of market changes. The fixed rate you get today will likely be higher than the variable rate, so shop around, and think carefully about the risk you’re willing to take.

Question #4: What Kind of Service Can I Expect?
When exploring your options, learn who you would be working with at each bank. Will you be speaking with a different person every time – or will you have a dedicated staff member who knows you and your goals? Also, is the financial institution stable and sustainable?

One of the perks Commerce offers when you refinance is customized financial planning from a private banker. This will be especially helpful as you continue to grow and advance in your medical career, as your private banker can also help with things like wealth management and investments.

Summary:
Refinancing could save you thousands over the life of your loan, or alleviate financial strain in the present moment. Explore your options by reaching out to Commerce Bank – even if you simply have questions or just want to learn more about the process. We’re here to help.

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