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Phil
LSU Fan
Member since Jun 2010
230 posts

Paying off student loans with mortgage equity
My wife has about $8k with one private loan at 11% and $35k at 6% with another. I should have about $70k at least in equity in my home. Would it be wise to refinance and pay off her loans using equity in the house? It seems that the interest rate being half on the home than on the loans it would be a no brainer. Any drawbacks to doing this?


Tigerpaw123
USA Fan
Louisiana
Member since Mar 2007
12491 posts

re: Paying off student loans with mortgage equity
quote:

Any drawbacks to doing this?


It becomes secured debt


Tigerpaw123
USA Fan
Louisiana
Member since Mar 2007
12491 posts

re: Paying off student loans with mortgage equity
You probably already know this but, Having 70k equity does not mean you can borrow that much, how much will your house appraise for? You can only borrow 80% of that


Phil
LSU Fan
Member since Jun 2010
230 posts

re: Paying off student loans with mortgage equity
Running the numbers it would be right at what the student loan amount is thatbwould put me right at 80%. I should have been a little clearer in the original message.

Meaning I can borrow just enough and hit right at the 80% mark


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10
LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
9583 posts
 Online 

re: Paying off student loans with mortgage equity
Have you looked at refinancing her student loans? Might be able to get that rate down a good bit.

I'm not a big fan of pulling cash out of a house to pay off other debts. I saw too many people do that before the housing crash and it caused them to be upside down during the cash. Lose a job and you got a real problem.


gobuxgo5
Ohio State Fan
Member since Nov 2012
4669 posts

re: Paying off student loans with mortgage equity
Yea but If he lost his job or whatever he could get out of a mortgage default and if the student loans were rolled into that then he would be free and clear.

If something happened now and he lost his equity due to a crash, then his job.. he'd be jobless with a student loan he couldn't get out of

A student loan is a deal with the devil you can't undo it typically in bankruptcy
This post was edited on 7/23 at 9:58 pm


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50
Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
44490 posts

re: Paying off student loans with mortgage equity
Unless you make too much income to get the full student loan deduction, you are better off keeping the mortgage seperated, and refinancing the student loans. Are both loans private? If so, just consolidate them together rather than going through the process and cost of taking equity from the house. In addition, but you'll likely be rolling the student loans into a term longer than refinancing separately, resulting in a higher overall finance charge in spite of possibly a slightly lower rate.

I literally did this myself yesterday, Sofi is incredible.

I had a lot of high interest loans like your wife, and they cut down the interest rate so far I was able to pay 100 less a month, while shaving 6 years of repayment time compared to remaining term.

Painless to apply and send documentation as well. I had a snag where they revised my rate up due to something they didn't like on the income verification, and was able to give them more info and they went below the original estimate.

Total time from application submission, to underwriter overlooking the application, to my submitting more info and the underwriter giving me final paperwork for e-signature? Less than 18 hours and I am in the "consideration period" giving me a chance to change my mind before disbursement.

No origination fee, and with your balance being similar to mine, you are also eligible for 100$ reward at signing that's deposited in your checking account to use as you wish, not just placed against the balance.

Keep in mind about the details of the rate. Unless it states otherwise, you can subtract 0.25% from the rate for setting up auto pay.

LINK
This post was edited on 7/24 at 12:35 am


YipSkiddlyDooo
Member since Apr 2013
2080 posts

re: Paying off student loans with mortgage equity
Why don't you just have the loan servicer lose her paperwork? Loan gone...problem solved.


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41
seawolf06
LSU Fan
Raleigh, NC
Member since Oct 2007
6328 posts

re: Paying off student loans with mortgage equity
Will banks allow you to use debt to pay off debt? I know this isn't typically the case with credit cards.


Phil
LSU Fan
Member since Jun 2010
230 posts

re: Paying off student loans with mortgage equity
I checked into this but they are saying that they would need a cosigner (she is a teacher and I think her income is negatively impacting this). I have great credit and don't want to negatively impact that. Would cosigning for her impact me in any negative way? Essentially I am the one paying for it at the end of the day.


iknowmorethanyou
LSU Fan
Paydirt
Member since Jul 2007
5934 posts
 Online 

re: Paying off student loans with mortgage equity
It would show up on your report as well.


Phil
LSU Fan
Member since Jun 2010
230 posts

re: Paying off student loans with mortgage equity
So essentially if the house and my truck are in my name (I have no student loans) then I am going to be screwed once adding her student loans?


ATLdawg25
Georgia Fan
Atlanta, GA
Member since Oct 2014
3599 posts

re: Paying off student loans with mortgage equity
I don't know if screwed is the right term, but your credit report will show that you are responsible for the loans you cosign on


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NYNolaguy1
LSU Fan
Member since May 2011
12034 posts
 Online 

re: Paying off student loans with mortgage equity
quote:

becomes secured debt


And forgiveable debt if you have a bankruptcy...

Student loans are not dischargeable until death in most cases.


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30
Teddy Ruxpin
LSU Fan
Austin, TX
Member since Oct 2006
30581 posts

re: Paying off student loans with mortgage equity
quote:

Will banks allow you to use debt to pay off debt? I know this isn't typically the case with credit cards.



Money is fungible.

Let's say you can use the money to pay for household expenses (groceries, daycare, etc) but not for the student loans.

Well what do you do? You use the loaned money for the groceries, the daycare, etc, you use your regular earned income on the loan.

Realizing money is fungible is a simple, yet, important attribute to be aware of.


iknowmorethanyou
LSU Fan
Paydirt
Member since Jul 2007
5934 posts
 Online 

re: Paying off student loans with mortgage equity
Not screwed, but it will alter your DTI.


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Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
44490 posts

re: Paying off student loans with mortgage equity
quote:

I checked into this but they are saying that they would need a cosigner (she is a teacher and I think her income is negatively impacting this). I have great credit and don't want to negatively impact that. Would cosigning for her impact me in any negative way? Essentially I am the one paying for it at the end of the day


It would only negatively affect it as far as DTI goes.

But depending on the layout of your credit, it is minor enough that it might be negated by the boost to your credit from increasing debt diversity


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Ric Flair
LSU Fan
Charlotte
Member since Oct 2005
9000 posts

re: Paying off student loans with mortgage equity
If God forbid she were to die or become disabled, you can get the student loans forgiven. Not so for the house. Also, if Bernie wins in 3.5 years, there might be some student loan programs that might not exist today.


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seawolf06
LSU Fan
Raleigh, NC
Member since Oct 2007
6328 posts

re: Paying off student loans with mortgage equity
quote:

Money is fungible.

Let's say you can use the money to pay for household expenses (groceries, daycare, etc) but not for the student loans.

Well what do you do? You use the loaned money for the groceries, the daycare, etc, you use your regular earned income on the loan.

Realizing money is fungible is a simple, yet, important attribute to be aware of.


Anyone who understands this knows that tax money does fund Planned Parenthood abortions and that the Lottery doesn't really fund education.

Having never done a HELOC or 2nd mortgage before, I wasn't sure if you had to state the purpose of the loan.


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o0 ecdysis 0o
LSU Fan
This sentence is false.
Member since Nov 2005
1057 posts

re: Paying off student loans with mortgage equity
we did this recently. our situation was a bit different than the OP's. we had planned to refinance anyway. there was considerable appreciation in our house, and we took out additional money for some renovations and to cover the student loan. worked out well. with the refi, we had the same monthly payment, but eliminated the student loan AND completed some much-needed renovations. i recommend it, but obviously the math has to work out (closing costs, LTV, adjusted interest rate, etc.).


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