How to Pay Off Student Loans with a Mortgage
Identify the types of mortgage loans available., Shop around for the best mortgage rates., Look into SoFi’s student loan payoff refinance., Crunch your student loan numbers., Estimate the costs of taking out a mortgage., Understand the risks of...
Step-by-Step Guide
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Step 1: Identify the types of mortgage loans available.
You can typically get either a home equity loan or a home equity line of credit.
Consider the differences:
Home equity loan.
You borrow against the equity in your home.
You’ll repay the loan in installments, just as you did your original mortgage.
Generally, your home equity loan will have a fixed interest rate.
Home equity line of credit (HELOC).
Tap the equity in your home like you would a credit card.
You don’t pay back in installments.
Instead, the amount varies, much like a credit card payment.A HELOC might start off with a lower interest rate, but the rate usually fluctuates and can go higher over time. -
Step 2: Shop around for the best mortgage rates.
You’ll only really save if the interest rate on the mortgage is lower than the rate on your student loans.
Accordingly, research the current interest rates available from lenders.
Stop at local banks and tell them you are interested in getting a second mortgage.Check interest rates online.
Website aggregators, such as LendingTree and Bankrate.com, let you compare many lenders at once.
Also consider fees and closing costs, which will increase the cost of the loan.
If you can’t find this information online, ask the lender.
Interest rates are different for home equity loans and HELOCs, so decide which one you want to pursue.
If you’re undecided, then collect rate information for both types of loans. , Generally, interest rates on a second mortgage will be higher than they were on your original mortgage.
Accordingly, getting a home equity loan or HELOC on your own might not be beneficial.
However, the non-bank lender SoFi will roll your student loans into your mortgage at current, low interest rates., Before applying, you need to calculate how much you’ll save, if anything.
Use an online calculator to estimate how much you will pay over the life of your student loans.Enter the total amount you owe, the interest rate, and the number of payments you have left.
For example, you might owe $50,000 in student loans at
6.8% interest.
Over 10 years, you’ll pay about $69,000 in total, of which $19,000 is interest. , Interest rates are only one part of the overall cost of your student loans.
You also need to consider the repayment period.
Generally, student loans are paid back over 10 years.
However, your mortgage might last for up to 30 years.
Use a debt repayment calculator to estimate the total cost of repaying the student loans using the terms of a home mortgage.For example, you might have $50,000 in loans.
Your mortgage will have a 4% interest rate over 30 years.
In total, you will pay about $85,000, of which $35,000 is interest.
This is much more expensive than simply paying your student loans.
If you took a 15-year mortgage at 4%, then you will pay about $66,600 in total, of which $16,000 is interest.
You can save about $3,000 by using a mortgage to repay your student loans. , By taking out a mortgage on your home, you can lose the house if you run into financial trouble down the road.
This happens because your home acts as collateral for the loan.
When you default, the lender can seize the collateral—your house.By contrast, a student loan lender can garnish your wages, but they can’t seize your home.You only put your home at risk by taking out a mortgage.
Think twice before taking out a mortgage to pay off your children’s student loans.
They probably have a lower income, so the lender can’t even garnish that much to pay off the loans. -
Step 3: Look into SoFi’s student loan payoff refinance.
-
Step 4: Crunch your student loan numbers.
-
Step 5: Estimate the costs of taking out a mortgage.
-
Step 6: Understand the risks of taking out a mortgage.
Detailed Guide
You can typically get either a home equity loan or a home equity line of credit.
Consider the differences:
Home equity loan.
You borrow against the equity in your home.
You’ll repay the loan in installments, just as you did your original mortgage.
Generally, your home equity loan will have a fixed interest rate.
Home equity line of credit (HELOC).
Tap the equity in your home like you would a credit card.
You don’t pay back in installments.
Instead, the amount varies, much like a credit card payment.A HELOC might start off with a lower interest rate, but the rate usually fluctuates and can go higher over time.
You’ll only really save if the interest rate on the mortgage is lower than the rate on your student loans.
Accordingly, research the current interest rates available from lenders.
Stop at local banks and tell them you are interested in getting a second mortgage.Check interest rates online.
Website aggregators, such as LendingTree and Bankrate.com, let you compare many lenders at once.
Also consider fees and closing costs, which will increase the cost of the loan.
If you can’t find this information online, ask the lender.
Interest rates are different for home equity loans and HELOCs, so decide which one you want to pursue.
If you’re undecided, then collect rate information for both types of loans. , Generally, interest rates on a second mortgage will be higher than they were on your original mortgage.
Accordingly, getting a home equity loan or HELOC on your own might not be beneficial.
However, the non-bank lender SoFi will roll your student loans into your mortgage at current, low interest rates., Before applying, you need to calculate how much you’ll save, if anything.
Use an online calculator to estimate how much you will pay over the life of your student loans.Enter the total amount you owe, the interest rate, and the number of payments you have left.
For example, you might owe $50,000 in student loans at
6.8% interest.
Over 10 years, you’ll pay about $69,000 in total, of which $19,000 is interest. , Interest rates are only one part of the overall cost of your student loans.
You also need to consider the repayment period.
Generally, student loans are paid back over 10 years.
However, your mortgage might last for up to 30 years.
Use a debt repayment calculator to estimate the total cost of repaying the student loans using the terms of a home mortgage.For example, you might have $50,000 in loans.
Your mortgage will have a 4% interest rate over 30 years.
In total, you will pay about $85,000, of which $35,000 is interest.
This is much more expensive than simply paying your student loans.
If you took a 15-year mortgage at 4%, then you will pay about $66,600 in total, of which $16,000 is interest.
You can save about $3,000 by using a mortgage to repay your student loans. , By taking out a mortgage on your home, you can lose the house if you run into financial trouble down the road.
This happens because your home acts as collateral for the loan.
When you default, the lender can seize the collateral—your house.By contrast, a student loan lender can garnish your wages, but they can’t seize your home.You only put your home at risk by taking out a mortgage.
Think twice before taking out a mortgage to pay off your children’s student loans.
They probably have a lower income, so the lender can’t even garnish that much to pay off the loans.
About the Author
Debra Wells
Brings years of experience writing about DIY projects and related subjects.
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