Putting Student Loans Into a Mortgage: Pros & Cons
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What Does Rolling Student Loans Into a Mortgage Mean?
Pros and Cons of Rolling Student Loans Into a Mortgage
Consolidate your debts. Many student loan borrowers have to pay back multiple student loan bills to different loan servicers. If you roll your student debt into your mortgage, you can simplify things by having a single payment to make. Combining your debts could make repayment easier to manage and work into your budget. Reduce your interest rates. Depending on your credit and other factors, you could qualify for a lower rate on a cash-out refinance or HELOC than you have on your student loans. Reducing your interest rate could lead to savings on interest charges. Gain tax benefits. You may be able to write off some of the interest you pay on your mortgage, potentially gaining greater tax benefits than you’d have on student loans. Since the situation is complicated, though, it’s worth consulting a tax professional about your specific situation. Lower your monthly payment. Since most mortgages have a long repayment term of 15 or 30 years, you could see your monthly student loan payment go down. Reducing your interest rate can also lower your monthly payment.
Risk foreclosure on your home. Student loan debt is unsecured, meaning your lenders can’t seize your assets if you default. (One exception is that the government can garnish your wages, tax refund, and Social Security benefits if you default on federal student loans). A mortgage is secured by your house, however. If you can’t pay it back, the bank can seize your home. Lose access to federal student loan protections. Federal student loans are eligible for a variety of programs, including income-driven repayment, forbearance, deferment, and loan forgiveness programs. Rolling your student loans into your mortgage means losing access to all these plans. Increase your interest costs. If combining your student loan debt with your mortgage means extending your repayment terms, you could end up paying more in interest over time, even with a reduced rate. Have trouble qualifying. Only borrowers with good or excellent credit and a low debt-to-income ratio qualify for the best rates on home loans. Unless you have strong financial credentials, you might not benefit much from rolling student loans into your mortgage through a cash-out refinance or HELOC.
Deciding if This Is the Right Choice for You
Alternatives to Rolling Student Loans Into a Mortgage
Student Loan Refinancing
Student Loan Forgiveness
Income-Based Repayment Plans
Refinance Your Student Loans With Lantern
3 Student Loan Refinancing Tips
Once the pandemic-related pause on federal student loan payments ends, going back to making payments may be hard on budgets. One solution is to refinance to a lower interest rate, longer loan term, or both, depending on your situation. (The tradeoff is that you’ll be forfeiting federal benefits such as repayment programs.) Find and compare your student loan refinance options. Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.) If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for federal student loan forgiveness.
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