Getting a higher education can provide you with increased earning power and prestige. At the same time, the bills for the student loans can be cumbersome. If you are trying to figure out a way to afford your bills, you might consider including them in a mortgage refinance.
Loan to Value
You may not always be able to include your student loans in a new mortgage. Before you can do this, you have to have enough equity in your home to make it work. The loan to value ratio of a new loan will play a role in whether you can include your student loans. For example, if you have a $200,000 house and a loan has a 90 percent loan-to-value ratio, you could borrow a maximum of $180,000. This means that you have to fit both the debt on your existing mortgage and your student loans into the $180,000 to make it work.
Term
When considering this move, think about the amount of time that you are going to be paying off this debt. With most student loans, you have somewhere between 10 and 20 years to pay them off. If you have a student loan with a 10-year term and refinance the debt into a 30-year mortgage, you are taking another 20 years to pay it off. This amounts to a significant increase in the interest that is charged.
Interest Deduction
If you had some other type of debt besides student loan debt, it could make some sense to refinance it into a mortgage. Mortgage interest is tax-deductible, which can provide you with a potentially large tax deduction. With student loans, you can already deduct the interest that you pay on them. This means that you are simply trading one tax-deductible debt for another one. Unlike if you refinanced some other type of loan into a mortgage, you are not gaining anything with this move.
Payment Plans
Instead of refinancing the debt into a mortgage, you may want to look at some of the flexible payment options that you may have with a student loan. Many student lenders provide flexible repayment options that can improve your financial situation. For example, they have graduated repayment programs that start payments out small and increase gradually over time. They also have income-based repayment plans that are tied to the amount of money that you bring in each year. This would help you find a payment program that is suitable for your situation.
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