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It’s possible to consolidate or refinance your student loans into one loan with a single monthly payment. The major difference between these two options is that consolidation is offered through the federal government for federal student loans only. Refinancing is done with a private lender and can include both federal and private student loans.

When you consolidate student loans with the federal government through the Direct Loan Consolidation program, the new interest rate is the weighted average of your prior rates, rounded up to the nearest one-eighth of a percent.

Another option is student loan refinancing, which can be completed with a private lender. If you refinance, the new interest rate on your loans is based on factors like current market rates, your credit profile, your employment history, and your debt-to-income ratio.

Understanding the differences between consolidation versus refinancing is critical before deciding to take the plunge — especially since private refinancing means you lose your federal student loan benefits.

What Is Federal Student Loan Consolidation?

You can combine your federal student loans into one by taking out a Direct Consolidation Loan from the government.

Consolidating your loans may help simplify your repayment process if you have multiple loan servicers. However, consolidating doesn’t typically result in any interest savings, as the rate is simply the weighted average of the loans you’re consolidating, rounded up to the nearest one-eighth of a percent.

In some cases, consolidating your loans may also be necessary if you are interested in enrolling in an income-driven repayment plan. In order to use a Direct Consolidation Loan, you must have at least one Direct Loan or one Federal Family Education Loan (FFEL).

What Is Student Loan Refinancing?

When you refinance student loans, it means you are borrowing a new loan which is then used to pay off the existing student loans you have. You can refinance both federal and private student loans. The new loan will have a new interest rate and terms, which as mentioned, are based on personal factors such as an individual’s credit history, employment history, and debt-to-income ratio.

Refinancing is completed with a private lender and borrowers may have the choice between a fixed or variable interest rate. In some cases, borrowers who refinance to a lower interest rate may be able to spend less in interest over the life of the loan. To get an idea of what refinancing your student loans could look like, you can take a look at SoFi’s student loan refinancing calculator.

It’s important to note that when you refinance student loans with a private lender, you lose access to federal loan forgiveness programs and payment assistance programs, such as income-driven repayment plans and student loan deferment.

Recommended: How to Build Credit

Comparing Student Loan Refinancing and Consolidation

As previously mentioned, consolidation can be completed for federal student loans through a Direct Consolidation Loan. Refinancing is completed with private lenders and can be done with either federal and/or private loans. An important distinction is that Direct Loan Consolidation allows borrowers to retain the federal benefits and borrower protections that come with their federal loans, while refinancing does not.

Depending on how a borrower’s financial situation and credit profile has changed since they originally borrowed their student loans, refinancing could allow borrowers to secure a more competitive rate or preferable terms. The rate and term on a refinanced loan will be determined by the lender’s policies and the borrower’s financial situation and credit profile, including factors such as credit score, income, and whether there is a cosigner.

Private Student Loan Refinancing Rates

It may be possible for borrowers to qualify for a more competitive interest rate by refinancing their student loans with a private lender. As of June 2023, current student loan refinance rates with SoFi start at 4.99% APR with autopay for fixed rate loans and 5.99% APR with autopay for variable rate loans. As noted previously, the rate you get typically depends on your total financial picture, including your credit history, income, and employment history.

Borrowers may also consider applying for student loan refinancing with a cosigner, which could potentially help them qualify for a more competitive interest rate.

Why Interest Rates Aren’t the Only Thing to Consider

Interest rates aren’t the only thing to consider when deciding whether to consolidate or refinance. If you go with a Direct Consolidation Loan, keep in mind that you might pay more overall for your loans, since this usually lengthens your repayment term. You may also lose credit toward loan forgiveness for any payments made on an income-based repayment plan or the Public Service Loan Forgiveness program.

If you refinance with a private lender, you’ll no longer be eligible for federal loan protections, including deferment and forbearance. Some private lenders, however, do offer their own benefits, such as a temporary pause on payments if you lose your job through no fault of your own.

It’s important to think carefully before consolidating or refinancing your student loans. Consider things like whether or not you plan on using federal benefits, and if a prospective private lender offers any options for relief if you hit a rough patch.

Even if you get a lower interest rate, make sure you can afford the new monthly payments before committing. And remember that this information is just a starting point for your decision. Don’t be afraid of doing more research and trusting you’ll make the right decision for you.

The Takeaway

Consolidating federal student loans can be done through the federal government with a Direct Consolidation Loan. The interest rate on this type of loan is the weighted average of the interest rates on the loans you’re consolidating, rounded up to the nearest one-eighth of a percent. When you consolidate, you keep your federal benefits and protections.

Refinancing student loans allows borrowers to combine both federal and private student loans into a single new loan with a new interest rate. The rate may be variable or fixed, and will be determined by the lender based on criteria like market rates and the borrower’s credit history. Again, refinancing will eliminate any federal loans from borrower protections, including income-driven repayment plans.

Depending on an individual’s personal circumstances, either consolidation or refinancing may make more sense than the other. If refinancing seems like an option for you, consider SoFi. SoFi offers an easy online application, competitive rates, and no origination fees.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Mortgage rates have risen considerably recently, from an average of 2.96% for a 30-year fixed-rate loan at the end of 2021 to around 6% to 7% at the midpoint of 2023. But despite it being more expensive to borrow money for a home, refinancing is still an attractive option for many homeowners. It allows you to replace your current mortgage with a new, potentially more advantageous one.

Perhaps you decided that you’d like to change your loan term, or you received a windfall you’d like to put toward lowering your mortgage ASAP. Another possibility is that you’ve built up equity and would like to tap it in a cash-out refinance.

Whatever your situation may be, here’s what you need to know about refinancing a home mortgage loan, from whether it’s right for you to what steps are involved to how much it will cost.

What Is Mortgage Refinancing?

Mortgage refinancing occurs when you replace one home loan with a new one. You might do so for such reasons as:

•  To get a different loan term (say, 15 years instead of 30, or vice versa)

•  To get a better interest rate

•  To tap your home equity

•  To make a switch between a fixed- and adjustable-rate loan

•  To get rid of mortgage insurance on an FHA loan.

You need to go through the loan application process, underwriting, and closing again and pay the related costs. The new loan will pay off the old one. Then, going forward, you pay the new lender every month instead of your previous one.

Mortgage Refinancing Costs

Refinancing will generally cost from 2% to 5% of your loan’s principal value in closing costs. That’s a significant range, so it can be wise to shop around to make sure you’re getting the best deal.

Since you’re essentially applying for a new loan, you will likely need a chunk of cash at the ready if you choose to refinance. For this reason, it’s important to consider those refinancing costs compared to the potential savings. A good rule of thumb is to be certain you can recoup the cost of the refinance in two to three years — which means you shouldn’t have immediate plans to move.

There are helpful online calculators for determining approximate costs for a mortgage refinance. Of course, this will only be an estimate, and each lender will be different. As you do your research, lenders can provide final closing cost information alongside a quote for your new mortgage rate.

When you refinance, you also have to consider closing costs. Some lenders may not have origination fees, but instead charge the borrower a higher interest rate.

If you have a history of managing credit well and a strong financial position, there are some mortgage refinancing lenders that will probably reward you by offering a better rate than they would charge those with lesser credentials.

Recommended: Home Affordability Calculator

How Long Does a Mortgage Refinance Take?

The process can take anywhere from 30 to 45 days or longer to complete. Factors that impact timing include the complexity of the loan, your ability to submit materials in a timely fashion, and the efficiency of the lender and/or broker.

If you want the process to move quickly, you may want to look for mortgage lenders who offer more streamlined service and a better customer experience. This may mean working with an online lender versus, say, a brick-and-mortar bank.

How to Refinance a Home Mortgage Loan

When you refinance a home mortgage, you are essentially repeating the same process as when you originally bought your property. This time, however, instead of the loan going to the homeowner you are buying a house from, funds will first go to the financial institution that holds your current mortgage. Once that loan is paid off, your newly refinanced loan kicks in. You start making payments to the new lender.

Because you are replacing one mortgage with another, you can expect the steps to be similar as they were when you got your original loan, from shopping around for the best loan for your situation to providing the necessary documentation to closing.

Steps in the Mortgage Refinancing Process

Here’s a closer look at the process:

1.   Determine your goal. The first (and arguably most important) step is to determine what you want to get out of your mortgage loan refinance. There are several mortgage refinance types, but “rate and term” and “cash-out” are the two most common.

Just as the name implies, a “rate and term” refinance updates the interest rate, the term (or duration) of the loan, or both. You can also switch between an adjustable- vs. a fixed-rate loan.

It is important to understand that not every refinance will save you money on interest. For example, if you extend the loan term from 15 to 30 years, you may lower your monthly payment, but you could end up paying more money in interest over the course of your loan.

Once you determine your goal, your primary focus will be determining whether the fees are worth what you’ll gain.

With a cash-out refinance, you are using increased equity in your home to take out additional money on your mortgage.

This is usually done to fund common home repairs or pay off other, higher-interest debt. While this kind of loan can be an excellent tool if you use it wisely, as with all loans, it’s rarely advisable to take out more than you absolutely need.

2.   Check your credit score and credit history for errors. Your credit score is an important factor in determining whether you get a better rate. Make sure you take time to clear up anything that’s been reported erroneously on your credit report. You might also want to remedy, say, an unpaid bill that was forwarded to a collection agency. These are factors that can lower your score.

3.   Research your home’s approximate value. Check comparable sale prices — not just listing prices — in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this will be helpful in securing the best refinancing rate.

4.   Compare refinance rates online. It’s wise to shop around and see what at least a few lenders offer. Don’t forget to ask about all costs involved. Most financial institutions should be able to give you an estimate, but the accuracy can depend on how well you know your credit score and LTV ratio.

5.   Get your paperwork together. The process will move faster if you have your pay stubs, bank statements, tax filings, and other pertinent financial information ready to go.

6.   Have cash on hand. Refinancing brings charges, and at closing, such items as overdue property taxes can need to be paid, too. Make sure you can cover these costs.

7.   Track the lender’s progress. Once the process is underway, keep an eye on how well things are moving ahead. What typically happens: The lender will likely send an appraiser for a home inspection. After the loan documentation and appraisal are submitted, loan officers determine the interest rate and create the loan closing documents. The closing is then scheduled with the refinancing company, mortgage broker, and your attorney.

Reasons to Refinance

As mentioned above, there are several typical reasons to refinance:

•  Reducing your monthly payment

•  Paying off your loan sooner

•  Changing the loan terms or type (fixed- vs. adjustable-rate)

•  Tapping your home equity

•  Eliminating mortgage insurance on an FHA loan.

Benefits of Refinancing

By refinancing your home loan, your monthly mortgage payments might be reduced. This in turn could free up money in your budget to go toward other goals, like paying down credit card debt or pumping up your emergency fund.

In addition, you might pay off your loan sooner, which could save you a considerable amount in interest over the life of the loan.

Refinancing your mortgage might also allow you to tap equity in your home. This could be useful if, say, you need those funds for educational or other expenses coming your way.

Also, some people who switch from an adjustable- to a fixed-rate loan may feel more secure with a set, unwavering payment schedule.

Recommended: First-Time Homebuyer Programs

Tips to Refinance a Mortgage

Beyond the tips mentioned above, you may also benefit from keeping these points in mind:

•  Think carefully about no-closing-cost loans. Yes, not paying closing costs can sound appealing, but there’s a good chance you will wind up with a higher interest rate and paying more over the life of the loan.

•  Make your appraisal a success. It can be distressing to have an appraisal come in low and throw a wrench into the works as you try to refinance. If there’s a glaring issue (rotting porch posts, for instance), it might be wise to fix it before the appraiser visits.

•  Prioritize requests for paperwork and documentation when your file is moving through underwriting. Not doing so can cause the process to drag on for longer than anyone might want.

The Takeaway

Depending on your financial situation and goals, refinancing your home loan can be a wise move. You may be able to lower your monthly payments, or you might shorten your loan term, thereby saving a considerable amount in interest. Another reason to refinance: To tap the equity you have built up in your home and use that cash elsewhere. The process is very similar to shopping for, applying for, and closing on your current mortgage. It will involve doing your research, providing documentation, and paying closing costs.

If refinancing is right for you, see what SoFi offers. With a SoFi Mortgage Refinance, you’ll find competitive rates, flexible terms, and a streamlined process, all of which can help you find just the right loan for your life.

FAQ

What is the average refinance fee?

Typically, you can expect to pay between 2% to 5% of the loan’s principal in closing costs when refinancing a mortgage.

Is it expensive to refinance?

The cost of refinancing will typically vary with the amount of the loan you are seeking. If closing costs are, say, 3.5% of the loan principal, that will be $3,500 on a $100K loan and $35,000 on a $1 million loan. It can also be helpful to compare these closing costs to the benefits of refinancing. For instance, you might free up more money every month to pay down pricey credit card debt, or you might shorten your loan term and pay less interest over the life of the loan when refinancing.

Why is it so expensive to refinance a mortgage?

When you refinance a loan, you are replacing your current loan with a new one. Closing costs are assessed to cover the expenses involved, including appraisal fees and other charges.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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A Direct Consolidation Loan combines federal student loans into a single loan with one monthly payment. If you have multiple federal student loans, this could be one way to simplify the repayment process and more easily stay on top of student loan payments. With a Direct Consolidation Loan, you are also eligible for student loan forgiveness and income-driven repayment programs.

A Direct Consolidation Loan, however, doesn’t typically lower your interest rate. Instead, this type of loan is geared toward borrowers who want to streamline their monthly payments or qualify for loan forgiveness, as opposed to borrowers who want to save money on interest.

While consolidation of student loans can lower your monthly payment by extending your repayment timeline, you typically end up paying more overall due to the additional interest you pay when lengthening your loan term. Before you commit, make sure to run the numbers and consider the pros and cons of a Direct Consolidation Loan.

Is a Direct Consolidation Loan a Good Idea?

Deciding if student loan consolidation is right for you depends on whether your desire to simplify your payments outweighs the potential loss of some benefits.

Pros of Direct Consolidation Loans

Can simplify repayment: The first thing to consider is if you currently have multiple federal student loans with different servicers, meaning you have to log in to two or more separate accounts to pay your student loan bills each month. In this instance, consolidation can make life a little easier because the process will give you a single loan with a single bill each month.

Can lower your monthly payments: Consolidation can also lower your monthly payment amount by giving you up to 30 years to repay your loan or by giving you access to income-driven repayment plans. Keep in mind, though, that by extending your loan term and reducing your monthly payment, you will end up paying more in interest over the life of the loan.

Can allow you to switch from a variable to a fixed rate: If you have any variable-rate loans, consolidation will make it so you can switch to a fixed interest rate.

Can make loans eligible for forgiveness: If you consolidate loans other than Direct Loans, such as Perkins Loans (drawn before the program was discontinued), those loans may become eligible for Public Service Loan Forgiveness (PSLF) once consolidated.

Recommended: Fixed vs. Variable Rate Loans

Cons of Direct Consolidation Loans

Can lead you to make more payments and pay more in interest: When you consolidate your federal loans, your repayment period will be extended between 10 and 30 years. This means you will make more payments and pay more in interest, unless you switch to a different student loan repayment plan.

Can make you lose some benefits: Consolidation can also cost you some benefits that only non-consolidated loans are eligible for, such as access to some loan cancellation options. It’s a good idea to check in with your loan program before opting for a Direct Consolidation Loan.

Can cause you to lose credit for payments toward loan forgiveness: One of the most important things to consider before consolidating student loans is that if you are currently paying your loans using an income-driven repayment plan or have already made qualifying payments toward PSLF, consolidating your loans will result in the loss of credit for payments already made toward loan forgiveness. However, there is now a one-time income-driven repayment account adjustment that allows borrowers to not lose credit from past payments if they choose to consolidate their loans.

How to Apply for a Federal Direct Consolidation Loan

The Direct Consolidation Loan application process is available through StudentLoans.gov and comes with no fees. You simply fill out the online application or you can print out a paper version and mail it. The entire online application process takes less than 30 minutes, on average.

Almost all federal student loans are eligible for consolidation. If you have private education loans, you cannot consolidate them with your federal loans. Also note that you can’t consolidate your loans while in school and must graduate, leave school, or drop below half-time enrollment in order to pursue consolidation. Parent PLUS Loans cannot be consolidated with loans in the student’s name.

You can also select which loans you do and do not want to consolidate on your loan application. For instance, if you have a loan that will be paid off in a short amount of time, you might consider leaving it out of the consolidation.

Remember to keep making payments on your loans during the application process until you are notified that they have been paid off by your new Direct Consolidation Loan. Your first new payment will be due within 60 days of when your Direct Consolidation Loan is paid out.

Repayment Plans for Consolidation Loans

A Direct Consolidation Loan will have a fixed interest rate that is the weighted average of all of the interest rates for the loans you are consolidating, rounded up to the nearest one-eighth of a percent. This means that the interest rate on your largest loan will have the most impact on your consolidation interest rate, whether that interest rate is high or low.

When you apply for a Direct Consolidation Loan, you must also be prepared to select a repayment plan. Many repayment plans are available for Direct Consolidation Loans, including:

•   Standard Repayment Plan

•   Graduated Repayment Plan

•   Extended Repayment Plan

•   Revised Pay As You Earn Repayment Plan (REPAYE)

•   Pay As You Earn Repayment Plan (PAYE)

•   Income-Based Repayment Plan (IBR)

•   Income-Contingent Repayment Plan (ICR)

Recommended: What Student Loan Repayment Plan Should You Choose? Take the Quiz

Consolidation for Defaulted Student Loans

Consolidation can also help student loans that are currently in default. Student loans will go into default after 270 days without payment, which can result in consequences and loss of benefits, such as damaging your credit score or possible wage garnishment.

Since loans in default are accelerated and the entire unpaid balance becomes due when you enter default, consolidation is worth considering since it allows you to pay off one or more federal student loans with the new Direct Consolidation Loan.

Once your consolidated loan is out of default, you can repay the Direct Consolidation Loan under an income-driven repayment plan or make three consecutive payments. Direct Consolidation Loans are eligible for benefits such as student loan deferment, forbearance, and loan forgiveness.

Refinancing vs Consolidation for Student Loans

For those interested in a better interest rate or more favorable loan terms, you could consider refinancing your student loans instead of consolidating them. Unlike consolidation, refinancing can combine both federal student loans and private student loans into one new loan with one monthly payment.

Keep in mind that refinancing can result in the loss of federal benefits since you’re working with a private company and not the government. If you plan on using income-driven repayment plans or student loan forgiveness, for example, it is not recommended to refinance with a private lender. However, for someone looking for lower interest rates or lower monthly payments, refinancing is an option to consider.

The Takeaway

A Direct Consolidation Loan combines your federal loans into one new loan with one monthly payment. Pros may include lowering your monthly payments, allowing you to switch from a variable to a fixed interest rate, and making certain loans eligible for forgiveness. The major con of Direct Consolidation Loans is possibly paying more in interest over the life of the loan due to the extension of your loan term.

If the idea of consolidation appeals to you but the weighted consolidation interest rate won’t save you much over the life of your loan, you could consider applying for student loan refinancing with SoFi. SoFi offers an easy online application, competitive rates, and flexible terms. But remember, refinancing makes it so you’re no longer eligible for federal benefits.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

If you already have a semester or two of college under your belt, you might be asking yourself, “How much do I owe in student loans?” It’s hard to keep track of your student loan balance, especially since the pause on federal student loan payments has been in effect since March 2020. But with that pause expected to end in the summer of 2023, it’s important to know what you owe.

The amount might startle you. One year after leaving school, graduates have an average of $33,500 in student loan debt, according to the most recent numbers from EducationData.org.

The sooner you find out your student loan amounts, the sooner you could make a plan to pay them off. Here’s how to check your student loan balance.

How to Find Out How Much You Owe in Federal Student Loans

Federal student loans typically come in two types: unsubsidized loans and subsidized loans. If you’re a graduate student, you might also have a Graduate PLUS federal student loan. So then, how to check a student loan balance? Fortunately, information on all your federal student loans can be found in one spot. You can look up your balance on the Federal Student Aid (FSA) website.

To check your student loan balance, simply log into your account at studentaid.gov with your FSA ID and password. There, you’ll find your current student loan balance, the interest that has accrued on your account, payment status, and your loan servicer. If your loan servicer has changed, that information will be there as well.

How to Find Out How Much You Owe in Private Student Loans

There’s no one central website to check your balance for private student loans. One method to figure out how much you owe in private loans would be to contact each loan servicer individually.

If your loans have new servicers and you’re having trouble tracking them down, call your original lenders and ask who the new servicers are. Your school’s financial aid office should also have this information.

Another way to find your loan servicers is to check your credit report. You can get a free copy of your credit report from the three main credit bureaus (Equifax, Experian, and TransUnion) and also from AnnualCreditReport.com.

Your report will list your student loans, the loan servicers, and how much you borrowed. From there you can call each server to find out how much you currently owe. Keep in mind, private student loan providers set their own terms, including loan term length, interest rates, and repayment plans.

It might be a good idea to organize your private student loans and determine when the repayment phase kicks in for each, as it could be different from the federal student loan repayment plan.

Keeping Student Loan Debt Manageable

If this is your first time looking up how much you owe in student loans, you might be feeling major sticker shock. Take a deep breath. Keeping track of student loans can be a big undertaking, so don’t panic.

One way to help manage your student loan debt while you’re in college is to get a part-time job. You could look for opportunities to become a paid tutor, intern, or residence assistant. If working part-time during school isn’t possible, you could plan on getting a full-time job in the summer and live off the savings throughout the school year.

In addition to picking up paying jobs, you could also explore scholarships. These help pay for your education and you don’t have to pay them back. All it takes is some dedicated time looking for the right match. You could check with your university and any organizations you’re involved with to see if you can help fund your tuition this way.

Paying Off Your Student Loans

Once you’ve learned how to check your student loan balance and then determined how much you owe, it’s time to develop a master plan to pay your loans off. This is important, especially since the median monthly student loan payment is $250, according to EducationDate.org, which is no small change.

These are some of the ways you could pay off what you owe.

Using a Government Repayment Plan

If you have federal student loans, you’ll likely repay your loans using a government repayment plan. This includes income-driven repayment plans where the minimum payment is based upon factors like your income and family size, and the repayment term can be stretched out to 25 years in some cases.

One downside of these options is that they typically increase the total amount you pay back when compared to the standard 10-year repayment plan.

You could also look into Public Service Loan Forgiveness (PSLF), as long as you meet the requirements. To qualify, you must work for a government agency or certain types of nonprofit organizations.

Making an Extra Payment Each Month

If you want to pay off your student loans more quickly, there are a few ways to go about it. First, you could make extra payments. You want to make sure the bulk of your extra payment goes toward your principal, not the interest, so it might make sense to contact your servicers or lenders to let them know if you want to do that.

It will be helpful to see all of your expenses and income together to determine how much extra cash you can put toward your loans. Drawing up a budget can help you determine how much extra money you can put toward your student loan balance.

DIY Student Loan Debt Payoff Ideas

You could organize your student loan debt by either the highest interest rate or by the lowest total outstanding balance. These methods are commonly referred to as the debt avalanche and debt snowball, respectively.

Paying off the debt with the highest interest rate could help save you money in the long-run, whereas paying off the smallest loan balance could give you a quick win.

Once you select a method, you might want to make sure you’re actually making a dent in the balance. One way to do that is to regularly check your balances and see what kind of progress you’ve made. If that method isn’t decreasing your student loan debt as quickly as you’d like, you could switch to a different one.

Refinancing Your Student Loans

Alternatively, you may want to work on ways to reduce your student loan payments. In that case, you could explore student loan refinancing.

When you refinance with a private lender, you replace your old loans with a new private loan, ideally one with a lower interest rate and better terms. Using a student loan refinance calculator can help you figure out how much you might save by doing this.

Once you know the potential savings involved, consider this critical question: Should you refinance your student loans? If it could save you money, refinancing might be worth pursuing. However, it’s important to know that if you refinance federal student loans, they will no longer be eligible for federal deferment or forbearance, loan forgiveness programs, or income-driven repayment. If you’re certain you won’t need access to these programs, refinancing may make sense.

Still not sure? This student loan refinancing guide is full of useful information that could help you decide whether refinancing is the right choice.

SoFi Student Loan Refinancing

If you decide to move ahead, student loan refinancing with SoFi could help lower your monthly payments, shorten your student loan term, or save you money on interest. You can choose low fixed or variable rates, and there are no fees. Plus, you can prequalify and get your rate in just two minutes.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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Shopping for a car: fun, freeing, and full of fresh new smells. Shopping for a puppy: heartwarming and full of suspicious smells. Shopping for a mortgage: not particularly thrilling or fragrant but one of the most important decisions many consumers will make in a lifetime.

From assessing what they can afford to nailing down a mortgage type, researching the best rates, and ultimately securing a loan, homebuyers must take many steps when shopping for a home loan.

Here are a few tips and tricks on how to shop for a mortgage loan and what to expect along the way.

How to Shop for a Mortgage Lender

In order to obtain a home mortgage loan, a buyer first needs a lender. You might work directly with a financial institution, or you may find a mortgage through a mortgage broker (more on that later). Before you can research these options, you’ll need to have a sense of what you can afford to buy and borrow. Start by figuring out how much you might spend on a home and roughly what portion of that you will need to borrow.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Figuring Out What’s Financially Possible

Reviewing monthly spending and estimating how much they can afford is one way for mortgage shoppers to kick off the home-buying process.

A budget or worksheet can be particularly helpful in determining what’s possible, with line items for the mortgage payment, property taxes, insurance, utilities, maintenance, and funds set aside for emergencies.

A mortgage calculator is useful for estimating the real cost of a home purchase, allowing consumers to plug in and play with the factors that influence a monthly mortgage payment:

•   Loan type

•   Mortgage principal

•   Mortgage interest rate

•   Down payment amount

•   Loan term

•   Estimated property tax

•   Private mortgage insurance, or PMI

•   Homeowners insurance

•   Homeowners association (HOA) fees

Most mortgage calculators allow homebuyers to enter their credit score for a more accurate estimate. Checking your current credit score can help you determine what type of loan you qualify for.

In many cases, a higher credit score can help buyers get a lower interest rate, while a lower credit score could mean higher interest rates or the need for a larger down payment.

Knowing this information can help consumers estimate what range of quotes to expect from mortgage lenders or brokers before they start shopping for a mortgage loan.

Recommended: First-Time Homebuyer Guide

Determining the Best Type of Mortgage

Another step to take when shopping for a mortgage is deciding which type of mortgage loan to apply for.

This process could require some diligent comparison shopping to consider the pros and cons of each option alongside financial and personal needs.

Fixed-Rate Mortgage

A conventional fixed-rate mortgage offers the same interest rate and monthly payment for the entire term of the loan — typically 15 or 30 years.

Adjustable-Rate Mortgage

ARMs generally offer lower interest rates than fixed-rate mortgages, but only for a certain time, such as five or 10 years. After that, the monthly payments will adjust to current interest rates.

No Down Payment Loans

A no down payment loan allows buyers to purchase a house with zero money down at closing, except for the standard closing costs.

Federal Housing Administration Loan

An FHA loan is a government-backed loan that allows qualified buyers to put down as little as 3.5% if they meet several FHA loan requirements, including the payment of mortgage insurance.

Veterans Affairs Loan

A VA loan is a government-backed loan that allows no down payment and no mortgage insurance. It is available to eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. VA loan requirements are worth looking into for buyers who fall into one of these categories.

USDA Rural Development Loan

A USDA Rural Development loan is a government-backed loan for families in rural areas who are trying to put homeownership within reach. As long as buyers’ debt loads don’t exceed their income by more than 41%, they can enjoy a discounted mortgage interest rate and no down payment.


💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Researching Rates and Deals

Once mortgage shoppers have a better idea of their financial bandwidth and preferred mortgage type, they can begin researching the optimum rates and deals they can get on a home loan.

Mortgage lenders and brokers might offer different interest rates and fees to different consumers depending on the day, even when they have the same exact qualifications. That’s why it can be important not only to understand mortgage basics but to compare what an array of different types of mortgage lenders and brokers are able to quote in the loan estimate.

Bear in mind that mortgage lenders and brokers receive a profit from the loan issuance, so they might be motivated to get consumers to agree to loans with higher fees, interest rates, or origination points.

Shopping around for the best interest rates and deals is a proactive way for homebuyers to avoid more expensive loans and ensure they can strike a deal they’re comfortable with.

How to Shop for a Mortgage Without Hurting Your Credit

When a lender looks at your credit history and score—what is known as a “hard” inquiry—and generates a mortgage preapproval, your credit score typically takes a hit. As you shop for a mortgage, you’ll want to instead first ask for a prequalification, which requires only a “soft” credit pull and won’t negatively affect your rating. It’s important to understand mortgage prequalification vs preapproval as you move forward through the process, as there is a time for each step.

Mortgage Lender or Broker?

One decision to make when shopping for a mortgage lender is whether to work with a lender directly, or to go through a mortgage broker:

•   A direct lender is a financial institution that assesses whether a buyer qualifies for a loan and offers them the funds directly.

•   A mortgage broker is an intermediary between the buyer and financial institution who helps the buyer identify the best direct lender and compiles the information for the mortgage application.
Long story short, mortgage brokers help homebuyers comparison-shop by collecting multiple lender quotes and presenting them all at once. This can be helpful for buyers who don’t want to deal with contacting multiple lenders. That said, the broker typically takes a commission, covered by the buyer, based on the mortgage amount.

In the case of working with a direct lender, it can be a good idea for buyers to deal with a financial institution they already have a relationship with.

Questions to Ask When Considering a Lender or Broker

Sometimes a list of questions can be useful when considering whether a mortgage lender or broker is the right fit. Ask prospective lenders the following:

•   How is the lender getting paid? It’s fairly common for a mortgage broker to get paid a commission on closed transactions. Asking them whether the fee is embedded in the loan origination fee or how their compensation will be facilitated can help make these costs more transparent to the buyer.

•   Can they offer competitive interest rates? If so, how long can they lock them in? While mortgage rates tend to be standard across the industry, lender rates can fluctuate based on the buyer’s credit score and financial history. Once the rate is locked in, there’s a guarantee from the lender that they’ll stay the same for a specific period of time, regardless of industry-wide fluctuations. Finding out if the lender is willing to offer the best rate and lock it in for, say, 60 days can help buyers know that they’re covered until closing time.

•   What are the typical business hours? Whether it’s a broker or a lender, finding out their availability can be good to determine in advance, especially since many home showings and offers happen on weekends and could require a tight turnaround time.

•   Can they provide a breakdown based on different down payment amounts? It can be useful for buyers to see a wide range of cost comparisons when shopping for a loan. Can the lender provide multiple scenarios with different down payment amounts, interest rates, and fees so the buyer can have a knowledgeable conversation about their budget and what’s possible?

•   What’s the loan processing time? Asking about the anticipated turnaround time for processing the loan (usually around six weeks) can help determine whether the lender will be able to execute the purchase and sale agreement in time for closing.

•   What fees and closing costs can be expected? Inquiring about expected charges is an important way for buyers to ensure no surprises or hidden transaction fees down the line. From origination fees charged by the lender to cover the loan processing to closing costs such as home inspection and appraisal fees, HOA fees, or title service fees, a loan estimate can help lay out which charges can be negotiated and which ones are fixed.

Understanding Risks, Benefits of Loan Options

Depending on the loan type, Annual Percentage Rate (APR), whether the interest rate is adjustable or fixed, the down payment amount, and potential prepayment penalties or balloon payments, mortgages have many different benefits and risks associated with their purchase.

Working with a lender to calculate how much monthly payments are estimated at the start of the loan, five years in, 10 years in, etc., can help make clear the risks and benefits of certain terms and conditions.

A mortgage worksheet is one way to help illuminate the potential upsides and downsides of a particular mortgage loan alongside the lender.

Negotiating the Best Mortgage Deals

After a suitable sampling of lenders have provided detailed mortgage loan quotes, consumers can compare costs and terms and negotiate the best deal. The mortgage worksheet can be helpful in this part of the process as well.

Being transparent about the fact that you’re shopping around for the best quote can incite lenders and brokers to compete with one another in offering the most favorable option.

Checking With Trusted Sources Before Signing

Once comparisons and negotiations whittle the list of quotes to a few, consumers might wish to consult with reliable sources such as a family member who has experience shopping for a mortgage, a housing counselor, or a real estate attorney to weigh in on the impending agreement. Review the loan documents with a trusted, well-informed source before signing anything.

Since getting a mortgage loan is often considered one of the most expensive commitments many consumers will make in their lifetime, there’s no harm in asking for a little help when making the decision.

Getting Mortgage Preapproval

Once you’ve chosen your mortgage provider, it’s time to consider getting preapproval. While being prequalified for a loan involves consumers submitting their financial information and receiving an estimate of what the lender could potentially offer, preapproval means the lender has conducted a full review of the consumer’s income and credit history and approved a specific loan amount for, typically, 60 to 90 days. This approval usually comes in the form of a letter.

Homebuyers can benefit from getting preapproved for a mortgage in many ways. Not only does it offer them the opportunity to discuss loan options in detail with the lender, but it also helps them understand the maximum amount they could borrow.

In some cases, sharing a preapproval letter with a home seller indicates serious intention to purchase a property. This can prove particularly helpful in competitive markets and bidding wars. Sellers will often go with a preapproved buyer over a prequalified buyer, since it may help the parties get to a closing more quickly.

Shopping for a Mortgage Lender Tips

In a competitive local housing market consumers may feel pressure to line up a mortgage quickly. But it pays to do your homework when shopping for a mortgage. Evaluate your own finances, know your credit score, and then make sure you are aware of the full range of options available to you. (Remember, first-time homebuyers may qualify for special programs.) Keep good records of competing offers from potential lenders or a mortgage broker. Never hesitate to ask about all costs or request clarification of any terms you don’t understand.

The Takeaway

How to shop for a mortgage? First, figure out how much you can comfortably afford, research loan types and interest rates, then compare what lenders offer. Finding the right loan is as important as choosing the right home.

SoFi makes shopping for a mortgage loan easy and you can get your rate in just minutes.

FAQ

What to look for when shopping for mortgages?

You want to look for a good interest rate when shopping for a mortgage, but you also want to consider the term of the loan and fees that might affect its total cost. A loan with the lowest monthly payment initially may not always be the most affordable choice over the long haul.

Is it worth shopping around for mortgage rates?

A mortgage is one of the biggest financial decisions most consumers will make, so it’s definitely worthwhile to shop around for the best rates.

How to shop around for the best mortgage interest rate?

Shop for the best mortgage interest rate by checking with various lenders to see what rate you might qualify for based on your credit score and down payment amount. Or work with a mortgage broker who will do this research for a fee.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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