Pay off student loan with mortgage refi?

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alerya
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Pay off student loan with mortgage refi?

Post by alerya » Thu Jan 18, 2018 8:17 pm

Hi all, I currently have a 4.75% 30 year mortgage with 19 years left due to prepayment (we're about 4 years in). Realizing that I could get a much lower rate with a refinance, I have recently been shopping rates and decided to go with a 12 year 2.99% product from a local credit union with zero closing costs. I was originally planning to just refinance the outstanding mortgage balance, which is 96k on a home valued at about 200k. However, my spouse has about 23k left of student loans at 5.14%, and I'm wondering if it would make sense to do a cash out refinance to pay off the remaining loan balance instead? Making only minimum payments, the student loan would be paid off in 5 years, but we have been aggressively chipping away at it to pay it off within the next 2 years.

One caveat, is that I'm not sure how long we will stay in the home. We'd like to move within the next 2 years to an area with a better school system, before our eldest child starts kindergarten. However, we don't find the housing market in our target area to be particularly flush and favorable at the moment, so are realistic in the idea that we may decide to stay here much longer for financial reasons. Not sure how much this impacts the decision.

So I ask, would you pay off the student loan now with the refi, or continue to keep the loans separate? Many thanks!

bltn
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Re: Pay off student loan with mortgage refi?

Post by bltn » Thu Jan 18, 2018 8:25 pm

If I were in your position, I would get the refi and on the house alone and keep the student loan separate, especially if you are paying both off early. Kudos on prepaying both loans.

nanoanalyzer
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Re: Pay off student loan with mortgage refi?

Post by nanoanalyzer » Thu Jan 18, 2018 9:17 pm

Refinance both, separately.

I would never trade unsecured debt for secured debt.
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Nestegg_User
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Re: Pay off student loan with mortgage refi?

Post by Nestegg_User » Thu Jan 18, 2018 9:25 pm

strictly financially, it would be better to go with the higher refinanced value, paying off the student loans immediately, then using the savings to help you max out 401k (if you aren’t already). then the funds you would have used to pay the student loan would be used to pay down principal ( if staying in the house), build up reserves for when you might change housing, or start 529’s.

the biggest question is do you have sufficient cash flow to handle the 12 year 3% loan, or is that a stretch? the drop of two percent is certainly nice, assuming your property tax is low enough that you could include all of your expenses in your itemized return.

(nano.... assuming that they have sufficient cash flow for the 12 year loan, the elimination of the unsecured student loan, which can’t be eliminated in BK, results in a plain pure choice of owning house versus rental as a lifestyle choice. if they had even longer term, say a full fifteen year loan, i’d still take that as they still come out ahead if they can then max 401k and build reserves) ( i’m also not sure if they could do much better than 5% on unsecured student loans these days, plus isn’t student loans off the table now for inclusion in itemization (?) whereas the house loan would be; can’t remember if that made it into the final bill )

alerya
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Re: Pay off student loan with mortgage refi?

Post by alerya » Thu Jan 18, 2018 9:31 pm

nanoanalyzer wrote:
Thu Jan 18, 2018 9:17 pm
Refinance both, separately.

I would never trade unsecured debt for secured debt.
Thanks nanoanalyzer! We shopped refinancing the student loan maybe 6 months ago or so, but there wasn't a great difference in the offered rates. I think the best rate we were offered was 4.75%, and I believe the consensus was that this was because the loan belongs to my spouse but I am the higher earner, and most of the companies we looked into didn't consider combined household income. I agree that we should browse rates again though, and 0.39% is still something.
bltn wrote:
Thu Jan 18, 2018 8:25 pm
If I were in your position, I would get the refi and on the house alone and keep the student loan separate, especially if you are paying both off early. Kudos on prepaying both loans.
Thanks, bltn! I appreciate your feedback.

alerya
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Re: Pay off student loan with mortgage refi?

Post by alerya » Thu Jan 18, 2018 9:50 pm

Nearing_Destination wrote:
Thu Jan 18, 2018 9:25 pm
strictly financially, it would be better to go with the higher refinanced value, paying off the student loans immediately, then using the savings to help you max out 401k (if you aren’t already). then the funds you would have used to pay the student loan would be used to pay down principal ( if staying in the house), build up reserves for when you might change housing, or start 529’s.

the biggest question is do you have sufficient cash flow to handle the 12 year 3% loan, or is that a stretch? the drop of two percent is certainly nice, assuming your property tax is low enough that you could include all of your expenses in your itemized return.

(nano.... assuming that they have sufficient cash flow for the 12 year loan, the elimination of the unsecured student loan, which can’t be eliminated in BK, results in a plain pure choice of owning house versus rental as a lifestyle choice. if they had even longer term, say a full fifteen year loan, i’d still take that as they still come out ahead if they can then max 401k and build reserves) ( i’m also not sure if they could do much better than 5% on unsecured student loans these days, plus isn’t student loans off the table now for inclusion in itemization (?) whereas the house loan would be; can’t remember if that made it into the final bill )
Thanks for your response! Due to the low mortgage balance and substantially lower rate, there is only about a $150/month difference in the monthly payment of the 12 year at 2.99% vs. our 19 year (remaining) at 4.75%, which we can certainly afford.

Per my calculations, to roll the $23k student loans into the 2.99% mortgage would increase the mortgage payment by $200 per month. The minimum payment on the student loan is $440/month and we pay $1000-1500 per month, so we would come out ahead from a cash flow perspective. This would also enable us to more easily max our available retirement saving vehicles, which we may not fully take advantage of this year due to trying to eliminate the 5.14% loan.

Other considerations, we won't have enough to itemize and will be taking the standard deduction in 2018, so no mortgage interest deduction. The student loan interest will, however, remain deductible to us from what I understand, as itemization is not required to claim the deduction.

ny_knicks
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Re: Pay off student loan with mortgage refi?

Post by ny_knicks » Thu Jan 18, 2018 10:06 pm

I would roll it into the mortgage and continue your plan to repay the loan in 2 years. Apply what you're currently paying on the student loans to the mortgage. Save $$$ on interest and still pay them off in the same time frame.

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Nestegg_User
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Re: Pay off student loan with mortgage refi?

Post by Nestegg_User » Fri Jan 19, 2018 12:54 am

OP
thanks for the response— sounds like rolling over is definitely in your best interest as it allows you to have the minimum required “nut” per month (sounds like it would be reduced by $50/month, at least) and allow you to increase your 401k, further reducing your taxable income and thus your taxes. I also mentioned 529’s for the kids future education, which part of your savings may be directed to, further reducing your taxable income. see the wiki for further info

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