Refinancing Mortgage to Pay Off Student Loans

Should I Refinance My Student Loans Into My Mortgage?

Let us explore five facts before you decide to bring your student loan debt under your mortgage refi gambit.

1) You Do Not Eliminate Student Loan Debt, You Add It to Mortgage

• Exchanging mortgage for student loan debt will not shrink your outstanding dues. It is more of a trade-off between the two. However, lower interest rates and savings may help you achieve a balance or compromise when you refinance student loans with mortgage.
• Mortgage rates still hover at 4%, as are Federal student loans. Private student loans may charge up to 13%. So refi only if you are at higher end.
• Two things are necessary: lower interest rates and savings. Student loans are 10 years, mortgage 30. You may end up paying more in interest over 30 years under mortgage refinance student loans.



2) You Need Built-Up Equity to Qualify for Student Loans Mortgage Refi

• Your mortgage loan to value ratio should not exceed 80%. Cash-out refinance mortgage pay off student loans entirely with 20% of home value left over. New home owners will not have built up this equity yet.
• Higher totals of mortgage balances plus student loan debt will not make you eligible.


3) You Will Lose Certain Options You Enjoy On Your Student Loan Debt

• Income-driven repayment option plans – help by capping amount to income and family size. Avoid defaults to preserve credit during unemployment or financial hardships. Make you eligible for forgiveness of remaining debt after 25 years.
• Federal Student Loan Debt Forgiveness – percentage forgiveness benefits are given for each year of public services completed. Teachers or public services employees including military, nonprofit, government jobs are eligible for government programs.
• Federal Student Loan Debt Mortgage Refi will make you INELIGIBLE for government programs.
• Economic Hardship Deferments and Forbearances – Federal student loan borrowers enjoy temporary benefits of lowering or stop making payments. Federal programs help avoid default during job loss and compulsory services in Peace Corps or military. Also, get a deferment on ‘Going back to School.’
• Mortgage Refinance may have a ‘loss mitigation program’ for some customers only but home owners returning to school cannot avail them.



4) You Could Lose Out On Tax Benefits

• Mortgage Debt is tax deductible. But borrowers need to itemize for it. Roughly, 68.5% household taxpayers prefer standard deductions to itemizing due to current low interest rates. They lose tax benefits on interest payments.
• Federal Student Loan and Private Student Loan debt allow borrowers to deduct up to $2,500 in interest payments. You don’t need to itemize to claim it.
• Student Loan Tax Deduction reduces Adjusted Gross Income (AGI), which could expand availability of other tax benefits.
• If you refinance mortgage student loans, you will lose these benefits.




5) You Could Lose Your Home

• Student loan debt has no collateral. You have to secure mortgage loan with home as collateral.
• Defaulting on home mortgage loans invites foreclosure. Defaulting on student loans may ruin credit but it won’t take away the roof over your head.
• Rely on Refinancing Student Loans with Mortgage only if you have Stable Career and Secure Income.
• Factor in that your home is a valuable asset before putting it at risk if you have financial concerns.
• Cashing out home equity increases risk of carrying mortgage into retirement. People who do refinance student loan debt with mortgage should plan and budget to pay it off before retirement.