Should you use a mortgage refinance to pay off student loans?

Contents
  1. Should I combine my mortgage and student loans? – Bankrate –
  2. The Downsides
  3. Alternatives
  4. GreenPath Is Here To Support You
  5. Should You Refinance Your House to Pay Off Your Student Loans?
  6. Fannie Mae's new guidelines make refinancing to pay loans easier
  7. You still need equity to refinance your home
  8. Your interest rate may — or may not — be lower after a refinance
  9. You could lose some repayment help by refinancing
  10. Using a Cash-Out Mortgage Refinance to Pay Down Student Loans
  11. Monthly Savings from Using a Mortgage to Pay Student Loans
  12. Secured Loan Risks
  13. Traditional Student Loan Refinancing vs. a Cash-Out Mortgage
  14. Cash-Out Mortgages and Student Debt: Final Thoughts
  15. Should I Refinance My Student Loans?
  16. When to Refinance Your Student Loans
  17. Refinancing Private Student Loans Right Now
  18. How Much Will Refinancing a Student Loan Save You?
  19. 4 Risks to Refinancing Your Mortgage to Pay Off Student Loans
  20. What is mortgage refinancing?
  21. How the student loan cash-out refinance works
  22. 4 risks to refinancing your mortgage to pay off student loans
  23. 1. Your home is used as collateral
  24. 2. You lose important protections
  25. 3. You’re putting your home at risk and eliminating equity
  26. 4. You miss out on tax deduction opportunities
  27. Benefits of refinancing your mortgage to pay off student loans
  28. 1. Simplifying your loan payments
  29. 2. You may qualify for lower interest rates
  30. Alternatives to refinancing your mortgage to pay off loans
  31. 1. Traditional student loan refinancing
  32. 2. Home Equity Line of Credit (HELOC)
  33. Cash-out refinance for student loans
  34. First, what is a cash-out refinance?
  35. You will need equity for a student loan cash-out refinance
  36. Some cons of a cash-out refinance to pay student loans

Should I combine my mortgage and student loans? – Bankrate –

Should you use a mortgage refinance to pay off student loans?

  • September 15, 2020
  • By: Greenpath Financial Wellness

Bankrate looks at whether homeowners paying off student loans should take advantage of current low-interest rates, refinancing their mortgage and using cash to pay off any education debt.

The strategy may seem a good idea on the surface, but what are the long term implications?

Many experts point to potential pitfalls to putting student and home debt into one bucket, and that there are other, more effective ways of reducing your payment burden.

The Downsides

It is useful to consider some of the downsides and alternatives to this strategy.

First off, paying off student debt with proceeds from a mortgage refinance means you’ll lose student loan-specific protections.

Many student loans — especially those issued by federally backed programs — have special conditions meant to help the borrower.

These range from repayment options income to possible loan forgiveness for people who go into government or nonprofit work after graduating. Some other professionals, teachers, doctors and nurses also qualify for certain types of loan forgiveness.

Anyone who applies their refinance proceeds to pay off student loans loses those very important protections.

“The big downside of refinancing federal student loans is that you’ll have to do so with a private lender,” says Chelsea Wing, loans editor at Bankrate.

“This means sacrificing many of the benefits of federal loans, including income-based repayment plans, the potential for student loan forgiveness and deferment options we’re seeing now — through the end of 2020, federal borrowers aren’t accruing interest, and they’re not required to make their student loan payments. Many private lenders have their own deferment and forbearance options, but not at this scale.”

Forbearance programs are important if you’re considering refinancing your student loans. If you refinance that debt into your mortgage and close before the end of the year, you’ll need to start paying that debt again immediately and will also start accruing interest again away.

You’re more at risk of losing your house.

Wrapping different kinds of debts together can create unintended consequences if you one day struggle to make your payments.

Rolling student loans into a mortgage means you’re putting your house up as collateral against the debt. If you can’t make the payment, the bank might foreclose and you could lose your home.

It could be more expensive overall.

Mortgage rates are at record lows, but low rates aren’t the only thing to consider when calculating the true expense of student loans.

“You want to look at an amortization calculator because you may pay more for that student loan over time if you stretch it out for a longer period,” says Katie Bossler, quality assurance team lead and a certified credit counselor at GreenPath Financial Wellness, a financial planning firm headquartered in Farmington Hills, Michigan. “It may not be as simple as it appears, swapping rates. That term matters.”

Typically, student loans are paid off over 10 years, while the most common mortgage term is 30 years. That means, even if you get a lower rate on your mortgage than you currently have on your student loans, you may pay more in interest because you might be carrying some of the debt for an extra two decades.

Alternatives

Low-interest rates aren’t limited to just mortgages.

A good approach is to see if you can refinance student debt separately.

“You can compare rates on student loan refinance options,” Bossler says, adding that you may be able to find student loan refinancing options with interest rates comparable to a mortgage right now, while maintaining a shorter repayment period.

Also, it’s important to keep your goals in mind. If your primary aim is to lower your monthly payments, you may be able to achieve that just by speaking to your loan servicer.

“They may have a lot of options available to lower that monthly payment,” Bossler says. Even privately financed student loan providers may offer some repayment flexibility.

“Overall, there’s just a lot of reasons why this may not be a great idea,” Bossler says. “Take it on with a lot of caution.”

GreenPath Is Here To Support You

What’s the best strategy for you? Our financial counselors are available to talk. They will walk through your whole financial picture to help you identify options that can relieve financial stress and make it easier to manage debt.

Request a Call with a Financial Expert

Источник: https://www.greenpath.com/combine-mortgage-and-student-loans/

Should You Refinance Your House to Pay Off Your Student Loans?

Should you use a mortgage refinance to pay off student loans?

almost every young adult in America, I was still in student loan debt years after I'd graduated. I also had a house, which thankfully had gone up in value, and which I'd been paying a mortgage on for years. Thanks to the equity built up in my home, I was able to refinance my mortgage to pay off my student loans with my home equity — but the process was not without pitfalls.

Now, Fannie Mae has announced new guidelines to make it easier to do what I did and take money a home to pay off student loans, which typically have a higher interest rate than mortgage debt.

While these guidelines can be a boon to homeowners with enough equity who want to say goodbye to student loans forever, there are some pitfalls, and transforming student loan debt into mortgage debt isn't right for everyone.

If you're tired of your student loans and wondering if paying off the debt by taking cash from your house is an option for you, here are a few things you need to know.

Image source: Getty Images.

Fannie Mae's new guidelines make refinancing to pay loans easier

Fannie Mae's new guidelines allow homeowners to refinance an existing mortgage and take out extra money to repay a student loan. If the outstanding balance on the mortgage being refinanced was $180,000, for example, a homeowner could borrow $200,000 and use the extra $20,000 to repay money owed on educational loans.

Cash-out refinancing was always an option; however, under previous guidelines, fees and sometimes higher rates of interest were charged on money borrowed that exceeded the balance of the loan being refinanced. This will no longer be the case, as long as Fannie Mae's rules for student loan refinancing are followed.

These rules require at least one student loan to be fully paid off with the proceeds from the refinance, and require that the borrowed money be paid directly to the student-loan lender. Homeowners are also allowed to take cash out only to pay for loans they have a legal obligation to pay. Parents, for example, could not refinance to pay off a loan that is only in their child's name.

You still need equity to refinance your home

Although Fannie Mae makes refinancing easier, you still cannot refinance unless you have enough equity in your home. Fannie Mae will only allow you to borrow up to 80% of what your home is worth, including the extra money you're taking out to repay your student loans.

You will need to have your home appraised — which can cost several hundred dollars — in order to satisfy your lender's requirements that your refinanced mortgage won't exceed 80% of your home's worth.

When I refinanced my home, I was confident my home was worth well over the amount needed, but my initial appraisal didn't reflect that.

Until my mortgage lender helped me successfully appeal the appraisal, I was worried I wouldn't be able to get enough cash out to pay off my loans.

This could be an even bigger problem with the new Fannie Mae guidelines requiring you to pay off at least one loan in full.

While I could have borrowed what was allowed and paid off part of my loans, this wouldn't be the case for someone trying to qualify under Fannie Mae's new refinance rules.

If your home doesn't appraise for enough, you could find yourself unable to qualify for the special rules for student-loan mortgage refinancing…and the money for the appraisal.

Your interest rate may — or may not — be lower after a refinance

Refinancing your home to pay off your student loans makes sense if your mortgage loan will have a lower interest rate than your student loans did.

This is typically the case for private student loans, as well as for some federal loans — especially those which, mine, were consolidated years ago at a rate above 6%. But, some federal loans may have lower rates than mortgage loans, the 3.

76% rate for direct subsidized undergraduate loans disbursed between July of 2016 and July of 2017.

If you'd be refinancing to a higher rate, you're better off keeping your student loans and not mingling educational debt and mortgage debt.

The only exception, if the mortgage and student-loan rates are close to the same: If you deduct your mortgage interest on your taxes and your income is high enough — $80,000 for single filers as of 2017 — that you cannot take a deduction for student-loan interest.

You could lose some repayment help by refinancing

There's one other thing to consider before you decide to refinance to pay off student loans: You could lose some of the special benefits available only for educational debt.

Student loans can generally be put into deferment or forbearance if you face financial hardship or go back to school. A mortgage can't, and you won't get a break from your mortgage lender just because you run into financial trouble.

With most student loans, you also have the option of choosing income-contingent repayment plans, so you won't struggle too much to pay if your income falls. Mortgage lenders expect you to pay regardless of what happens to your income.

Additionally, some types of student loans are forgiven if you put in enough years of service in an eligible public-interest career. Mortgage lenders, unsurprisingly, will not forgive your mortgage balance because you work in a school serving underprivileged children or take a job in legal aid.

So, before you decide to turn student-loan debt into mortgage debt, make sure you're in a steady job and ly to have a reliable income for years to come…

and that you won't be giving up your current career to work in public service any time soon.

If you're in a stable place in your life, and you have the equity, it might make sense to consider wiping out your student-loan debt with a new mortgage loan.

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Источник: https://www.fool.com/mortgages/2017/05/25/should-you-refinance-your-house-to-pay-off-your-st.aspx

Using a Cash-Out Mortgage Refinance to Pay Down Student Loans

Should you use a mortgage refinance to pay off student loans?

With mortgage rates near record lows, many student loan borrowers are thinking about using a mortgage refinance to attack their student debt.

The process is called a “cash-out” mortgage. Instead of refinancing the amount currently owed on a house, in a cash-out refinance, homeowners borrower more than what they owe. This means they potentially get a large check at closing.

This option could be very tempting to student loan borrowers with higher interest rates. Someone who owes $140,000 on a house valued at $200,000 could do a cash-out refinance for $160,000. By going this route, the borrower can refinance their home at a lower interest rate, and get a check for $20,000 (minus closing costs) and use that money to pay down student loans.

Using a cash-out refinance could work in certain circumstances, but it comes with risks, and it may not be the best option for most borrowers.

Monthly Savings from Using a Mortgage to Pay Student Loans

Converting student loan debt to mortgage debt can provide a noticeable boost to monthly cash flow.

Generally speaking, monthly loan bills can be lowered in one of two ways: lower interest rates and longer repayment length. A cash-out refinance often accomplishes both. Interest rates can be reduced to the 3-4% range, and monthly payments are essentially spread out over 30 years.

To illustrate the potential savings, suppose we have a borrower with $10,000 of student loan debt at 7% interest on a 10-year repayment plan.

By utilizing some of the equity that the borrower has built up, the borrower can get a $10,000 check in a cash-out refinance at 4% on a 30-year fixed-rate loan.

In short, our hypothetical borrower has about half the original interest rate and gets 20 extra years to repay the debt.

In this example, our borrower would be making $116 payments on the student loan. If the debt were wrapped into the mortgage through a refinance, the extra $10,000 borrowed would increase the mortgage payment by just $47 per month. That provides an extra $69 per month in cash flow.

A borrower who takes the same steps with $50,000 in student loans would free up over $300 per month!

Another advantage is that the mortgage interest deduction is better than the student loan interest deduction for many borrowers.

The student loan interest deduction has income restrictions and a lower deduction maximum.

Generally speaking, mortgage interest is preferable at tax time, but the recent 2018 Tax Cuts and Jobs Act (better known as the Trump tax cuts), may change calculations for some borrowers.

However, the monthly cash flow and potential tax advantages come with some financial downside.

The negative is that by spreading out the payments over 30 years instead of just 10, the total spending on interest will be increased. By adding the $10,000 to the mortgage, it will result in an extra $7,187 in interest spending.

Had the borrower stuck with the original 10-year repayment plan at 7% interest, the total interest spending would have been $3.933.

In short, the longer it takes to repay the loan, the more you spend on interest… even if you have a noticeably better interest rate.

There are also risks to using a cash-out refinance to convert student loan debt into mortgage debt.

Secured Loan Risks

Student loan debt is considered to be unsecured debt. This means that the debt is not secured to any asset or collateral owned by the borrower. If a student defaults on their student loans, their education cannot be taken away.

A mortgage is a classic example of secured debt. If the borrower fails to make mortgage payments, the borrower risks foreclosure. Not making house payments can mean losing the house to the bank.

Adding extra debt to a mortgage means a higher payment. A larger payment is more difficult to handle during a financial hardship.

In other words, borrowers who add student debt to their mortgage risk losing their house because of student debt.

Student loan borrowers can make individualized assessments as to the danger of the student debt leading to a mortgage default. Still, it is something that all borrowers should carefully consider and weigh the risks.

Traditional Student Loan Refinancing vs. a Cash-Out Mortgage

A cash-out mortgage refinance can’t be discussed in a vacuum. Credit-worthy borrowers have multiple options to lock in lower interest rates on their student loans.

In a traditional student loan refinance, sometimes called loan consolidation, borrowers find a new student loan lender to pay off their old student loans. The borrower then repays the new lender according to the terms of the new loan. This approach can often yield significantly reduced interest rates and/or a longer repayment period.

A big advantage to a student loan refinance over a cash-out mortgage refinance is the savings on transaction costs. A student loan refinance has no transaction costs, while a mortgage refinance usually costs thousands of dollars. Expenses that are included in mortgage closing costs title insurance, recording fees, and appraisals don’t exist with student debt.

Another advantage of traditional student loan refinancing is that the debt doesn’t get combined with the mortgage. This reduces the chances of student debt leading to foreclosure and losing your house.

From an interest rate perspective, the student loan refinance companies are surprisingly competitive with mortgage refinance rates. The refinance rates with many lenders currently start below 2%. However, these excellent rates are limited to 5-year variable-rate loans.

 The 30-year fixed-rate mortgage offers a borrower far more flexibility. The closest apples-to-apples comparison on rates is to look at the 20-year fixed-rate student loan refinance as it is the longest repayment period that most lenders will allow.

In the 20-year fixed-rate category, rates start just under 5%.

Ultimately, the mortgage refi will have better rates and a longer repayment period. The student loan refinance will save thousands from day one because there are no closing costs. Borrowers will have to weigh the interest rate difference against the closing costs when making a final decision.

Cash-Out Mortgages and Student Debt: Final Thoughts

Using home equity to eliminate student debt can be very appealing, especially when mortgage rates are near record lows.

Unfortunately, there are issues. Even though the borrower is saving some money on interest each month, by stretching out payments over 30 years, the total interest spending ends up being much higher. Combine the higher total spending with closing costs and risk of foreclosure, and the cash-out refinance suddenly looks much less appealing.

This is a financial move that might work out for some student loan borrowers, but most will ly be better off with aggressive repayment or a traditional student loan refinance.

Источник: https://studentloansherpa.com/cash-out-mortgage/

Should I Refinance My Student Loans?

Should you use a mortgage refinance to pay off student loans?

With millions drowning in debt, it’s no wonder so many Americans are refinancing their loans. Refinancing can be a great way to get a better interest rate and save you money in the long run. And if student loans are cramping your style, maybe you’re wondering, Should I refinance my student loans? Let’s find out!

When to Refinance Your Student Loans

For many people, student loans feel a roadblock that delays their dreams.

We get it. Figuring out how to get student loan debt on your own isn’t easy. It’s they’re designed to be as confusing as possible so you stay stuck and pay more in interest with every payment.

But refinancing could be a great option to accelerate your debt payoff.

Does any of this sound familiar?

  1. My student loan interest rate is too high.
  2. My variable interest rate is making it hard for me to budget.
  3. At this rate, it’s going to take me forever to pay off my student loans.

If any of this rings a bell, then refinancing could be a good option. But we only recommend a refi if all of the following are true for you:

  • It’s completely free to make the change.
  • You can keep a fixed rate, or you can replace a variable rate with fixed. (The last thing you want to do is give your lender the option to jack your monthly payment way up without notice!)
  • You don’t have to sign up for a longer repayment period. (And hey, if the new loan shortens the term of repayment, that’s even better!)
  • Your new interest rate would be lower than your current interest rate.

Refinancing Private Student Loans Right Now

Since private student loans were not affected by any relief from the CARES Act or the Student Loan Payment Relief Extension, now is the perfect time to refinance your private student loans.

How Much Will Refinancing a Student Loan Save You?

Imagine you have a student loan of $25,000 with a variable interest rate that’s currently sitting at 7%. You’d probably to get rid of it, but so far you haven’t exactly been attacking the debt. So, you’re only making the minimum monthly payment of $225. At that rate, it’s gonna take you 15 years to pay off. That’s nearly four presidential elections away!

Get a new student loan rate from a Ramsey-trusted company in 10 minutes.

Источник: https://www.daveramsey.com/blog/should-i-refinance-my-student-loans

4 Risks to Refinancing Your Mortgage to Pay Off Student Loans

Should you use a mortgage refinance to pay off student loans?

In 2019, Americans collectively owed 1.6 trillion in student loan debt – a number that has been steadily increasing for the past few decades. With so many young Americans weighed down by the burden of student loans, many are finding it difficult to pay down their loan balances while also achieving goals marriage, homeownership and starting a family.

In some cases, homeowners may be able to refinance their mortgage to pay off student loans. While this program may sound promising, you should approach it with caution.

Taking advantage of this approach essentially involves putting your house on the line. If you’re unable to make payments in time, you may risk foreclosure.

This approach also means that it will take longer to pay off your mortgage and you may lose out on other debt relief and forgiveness options.

What is mortgage refinancing?

Mortgage refinancing allows homeowners to replace their current mortgage with a new one. In many cases, refinancing can help you to secure better rates and lower your monthly mortgage payment. If you’ve already built up equity in your house, you can opt for a cash-out refinance.

This allows you to borrow more than you owe on your current loan and use the extra money for other purposes. However, the decision of whether or not to refinance your mortgage should not be taken lightly.

While there are some benefits to a cash-out mortgage refinance, it’s important to be aware of the risks and make the financial decision that is best for your situation.

How the student loan cash-out refinance works

If you’ve built up equity in your house, you can use a student loan cash-out refinance to pay off your student loans.

Interest rates for refinanced mortgages are often lower than interest rates on student loans, so this can help to reduce your monthly payments and save you money in the long run.

Although most cash-out refinances come with associated fees, these fees are waived if you use the money to pay off student loans.

To refinance your mortgage and cash out your student loans, you should first have sufficient equity in your home. This means that you’ve paid off enough of the value of your home that you can leverage these payments to refinance your mortgage.

A cash-out student loan refinance works the same as a regular mortgage refinance, except that you must use the money exclusively to pay off student loans.

In order to qualify, you must pay the money from the refinance directly to the student loan servicer.

4 risks to refinancing your mortgage to pay off student loans

While using a student loan cash-out refinance to pay off your student loans may sound a good deal, there are a variety of risks associated with it.

Since a cash-out refinance uses your home as collateral, you’re at additional risk of losing your home if you find yourself unable to make monthly payments.

In addition, if you opt for a cash-out refinance you’ll sacrifice many of the protections associated with federal student loans.

1. Your home is used as collateral

When you refinance your house to pay off your student loans, you’re essentially using your house as collateral. This means that if you’re unable to make payments you may run the risk of a foreclosure on your house.

Student loan debt isn’t tied to any particular collateral – they can’t take away your education or degree even if you fall behind on payments.

Putting all your eggs in one basket when it comes to debt payments may sound appealing for simplicity’s sake, but it also comes with much greater risks.

2. You lose important protections

When it comes to federal student loans, there are important protections in place that can help out borrowers during tough financial jobs.

If you have a hefty student loan burden and are struggling to make your monthly payments, you may be eligible for income-based repayment options or even temporary loan deferment.

Mortgages don’t come with any of these protections, so if you use a student loan cash-out refinance, you’re no longer eligible for them.

3. You’re putting your home at risk and eliminating equity

To be eligible for a student loan cash-out refinance, you need to have built up equity in your home.

When you roll a student loan into your mortgage, you significantly increase the amount you owe on your house and eliminate the equity you’ve built up so far.

This can make it more difficult to sell your house for the cost of your mortgage in the future. It also means that it will take more time and money to pay down the mortgage on your home.

4. You miss out on tax deduction opportunities

When tax season rolls around, taxpayers with student debt are allowed to deduct student loan interest from their income taxes. If you roll your student loans into your mortgage, you are no longer eligible for this deduction. This means that you may have to pay more in taxes than you otherwise would.

Benefits of refinancing your mortgage to pay off student loans

Although there are a lot of risks associated with opting for a student loan cash-out refinance, there are also some benefits. A cash-out refinance can simplify your monthly payments, making it easier to pay off your loans. It may also help you to secure better interest rates that can save you money over time.

1. Simplifying your loan payments

When you refinance your mortgage to pay off your student loans, you’re essentially lumping your student loans in with your mortgage.

This means that you’ll only have to make one lump sum payment each month, and only have one large loan to worry about.

If you’re overwhelmed by the number of loans and bills you have to pay each month, a student loan cash-out refinance can help to simplify the process

2. You may qualify for lower interest rates

In general, mortgages have slightly lower interest rates than student loans.

If you opt to refinance your home to pay off student loans, you’ll probably end up paying slightly less in interest than if you’d left your student loans accounts alone.

This means that you’ll end up paying less money over time and may be able to pay off the balance represented by your student loans that much faster.

Alternatives to refinancing your mortgage to pay off loans

If you’re considering refinancing your mortgage to pay off your student loans, you may also be eligible for a variety of alternatives. These may include traditional student loan refinancing or a home equity line of credit. These options offer many of the same benefits as a cash-out refinance depending on your particular situation.

1. Traditional student loan refinancing

Traditional student loan refinancing is similar to a student loan cash-out mortgage refinancing in that it allows borrowers to consolidate their student loans and often secure a lower interest rate.

This practice is also sometimes known as loan consolidation.

While this can, in some cases, significantly lower the amount of interest you’ll accumulate on your student loans, it also strips you of many federal student loan protections, income-based repayment and temporary loan deferment.

2. Home Equity Line of Credit (HELOC)

Borrowers with equity invested in their homes also have the option of taking out a home equity line of credit, otherwise known as a HELOC.

This line of credit generally has higher interest rates than a mortgage refinance and comes with many of the same risks.

However, it can be a good option for borrowers who are looking to pay off their student loans and don’t mind the additional risk it places on their house.

Источник: https://www.thesimpledollar.com/loans/student/student-loan-cash-out-refinance/

Cash-out refinance for student loans

Should you use a mortgage refinance to pay off student loans?

In this article:

  • What is a cash-out refinance?
  • When it makes sense to use a cash-out refinance for student loans
  • Drawbacks of cash-out refinance

Fannie Mae has made it easier for homeowners to use the equity in their home to repay student loans. Paying off or refinancing student loans by way of a refinance may help you reduce your monthly expenses. But is a cash-out refinance for paying off student loan debt the best idea?

Verify your new rate (Mar 25th, 2021)

First, what is a cash-out refinance?

A cash-out refinance means replacing your existing mortgage with a bigger one. You get to take the difference in cash to spend as you wish. It’s a way to get cash without having to sell your house.

Breaking down the math, let’s say you have a home valued at $250,000, and you owe $175,000 on the mortgage. Refinancing via a conventional cash-out refinance, you could take out 80 percent of your home’s equity. You would pay off the $175k owed on your existing loan, and have the remaining $25,000 in cash.

Related: 4 cash-out refinances and how they work

Cash-out refinances have always been an option. Additional fees and higher interest rates are charged on any money borrowed that exceeds the balance of the loan being refinanced.

This is no longer the case with Fannie Mae’s rules for student loan refinancing.

According to Fannie Mae, there are 8.5 million homeowners saddled with nearly $1.4 trillion in student loan debt. 41 percent have their own debt, and about one third co-signed on student loans for their children.

Fannie’s new program dubbed the Student Loan Cash-Out Refinance, helps homeowners with student loans pay down that education debt. Homeowners with college loans taken out on their behalf or their children can tap into their home’s equity via refinancing.

The lender will then use the cash from their equity to pay down the student debt. Fannie requires that the borrowed money be paid directly to the student loan lender.

Related: Mortgage approvals for people with student loans have gotten much easier in 2018

Fannie Mae’s rules require that at least one student loan be paid off fully from the proceeds of the cash-out refinance. Doing so means, un before, this type of refinance will no longer be considered a cash-out refinance.

Further, with the refinance no longer being considered a cash-out loan, the extra fees and higher interest rates no longer apply.

In terms of guidelines, non-cash-out refinance loans are also easier to qualify for as compared to a standard cash-out refinance.

Being underwriting and “priced” as a rate and term refinance, as opposed to a cash-out refinance, is a HUGE advantage.

You will need equity for a student loan cash-out refinance

Although Fannie Mae makes a cash-out refinance to pay off student loans easier, you still need equity in your home to do so.

Fannie Mae will require that you still have 20 percent in equity leftover after refinancing. This means you can borrow the amount owed on your existing mortgage, along with the amount to pay off at least one student loan in full, as well as the closing costs charged for refinancing, as long as you don’t exceed 80% of your home’s worth.

Related: FHA cash-out refinance guidelines (take out cash up to 80 percent of your property value)

All refinance loans, cash-out or otherwise, will require an appraisal completed on your home to verify its value.

Ever since the real estate crisis of 2008, appraisers aren’t as generous with their valuations. Be conservative when doing your own math. As always, it’s helpful to have a mortgage professional involved during this process as you weigh your options.

Some cons of a cash-out refinance to pay student loans

Student loans are unsecured debt. In other words, un your home, there’s no collateral in the event of student loan default.

By rolling in your student loan debt, you are in essence, putting everything on the line. By using your home to secure your student loan debt, your home becomes collateral for your student loans.

Related: Refinance your home without restarting the clock on your repayment

Further, if you were to lose your job, it’s ly that you could get a payment plan on a student loan. For example, the federal government provides several Income-Driven Repayment (IBR) plans. This isn’t necessarily going to be as easy when your student loan is now part of your mortgage debt.

The average student loan is a 10-year term. If you choose a 30-year fixed mortgage, you’re stretching that 10-year debt out over 30 years.

You could lower your overall monthly debt burden by wrapping your student loans into your home payment.

  • By including your college debt in your mortgage debt, depending on current mortgage rates, you could reduce your interest rate
  • If you choose a shorter mortgage term, you could also reduce the number of payments owed on your student loans
  • There are certain tax incentives for which you may qualify now that your student loans are part of your mortgage (check with a finance or tax pro)

Be sure to consider the risks, the costs and your own situation before deciding whether or not you should roll your student loans in a mortgage.

If you’re in a stable place in your life with a steady job, and you have the equity, it may make sense to consider erasing your student loan debt with a new student loan cash-out refinance.

With mortgage interest rates still at historic lows, even if you’ve tried to a cash-out refinance previously and been turned down, it may be worth trying again, especially if your primary goal is to pay off student loan debt.

Verify your new rate (Mar 25th, 2021)

Источник: https://themortgagereports.com/41137/pros-and-cons-of-using-a-cash-out-refinance-for-student-loans

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