Refinance or just make larger payments?

[fixing_it]

I have a student loan that has around $22k still remaining. The loan is quite old so I'm approaching the end here but as a result it has a 6.75% interest rate. 

My current payment amount is $320 but I generally make a $500 payment, sometimes more. 

Yesterday I received an offer to refinance as low as 1.89% variable or 2.63% fixed. 

Since I usually pay more than the stated payment, does it make sense to start the term over again and get the lower interest rate? Keep in mind I will be applying a mortgage soon so I have to take that into consideration. If I go with a 10 year loan it makes it appear that the loan payment amount is lower than what I pay now. But if I go with a 5 year term then it will look like I am paying more even though my interest rate is much lower. Income is high enough where it shouldn't affect my DTI either way but just wondering what the best course of action would be. 

Thanks!

[Girlzilla88]

@fixing_it      If you plan to apply for your mortgage within 3 months or so I would hold off you don't want to touch your credit for anything several months before applying for a Mortgage especially if DTI isn't an issue at this point.     If it was then I would say consider the 10 year and continue to make larger payments so you pay it off before the 10 year mark.

[Girlzilla88]

@fixing_it      Are you able to make 'principal only' payments?!     That may be something to consider as well ^^

[fixing_it]

Yes I can make "principal only" payments but didn't start doing it until recently. So as a result right now my next payment isn't due until 2022!

[Girlzilla88]

@fixing_it    Awesome that will help too ^^

[ccquest]

Keeping your $500 payment and only changing to a 2.63% rate instead of 6.75% would save you $2000 in interest by payoff.

You could pay it off by December 2024 instead of April 2025.

That's just the interest rate change and keeping at the $500 monthly. I don't really look at the term, unless it affects interest rate significantly or takes you over a comfortable payment amount.

For mortgage purposes, I'd say whatever keeps the payment the lowest, but if your DTI is good either way then it doesn't matter much there either!

[calyx]

Because of your soon-to-be mortgage app, definitely just make principle only payments.

You can re-fi after your mortgage and continue to pay ahead/principle only, but the mortgage scores really do not like recent accounts, and you don't want to chance getting a higher rate there, which could definitely cost you much bigger bucks long term.