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Should You Roll Student Loans into Home Equity?

Paying major expenses

Borrowing against your home can be a useful tactic, especially if you’re looking to pay off your own student loans, or your child’s. Every financial decision has its positives and negatives. This applies to utilizing home equity loans to pay off student debt. Before you decide, you should research your reasons for doing so.

Rewards:                            

  • Lower interest rates: One of the most attractive concepts of rolling over your student loan into your mortgage is that borrowers may benefit from the lower interest rates. Interest rates with Discover Home Equity Loans start at 3.99% for loans in the first lien position (no mortgage balance) and 3.99% for loans in the second lien position. Other loan options such as PLUS (Parent Loan for Undergraduate Students) are 7% as of July 1, 2017, and private lenders offer a wide range of rates that sometimes may be well above home equity rates.
  • Reduces number of payments: Student loans sometimes can be divided among different lenders. When you use home equity to pay off student loans, you are able to reduce several payments into one. Having an organized, single bill can also reduce the likelihood of missed future payments.

Risks:

  • Collateral: Home equity loans are secured by your home. So, you should be comfortable in making your monthly payments. If you cannot make your monthly payments on time, you put your home at risk.
  • Extending the life of your loan: Depending on your loan repayment term and how far into the loan term you are, you may be increasing the life of your loan by refinancing with home equity. Home equity loans commonly have terms from 10-30 years, so factor in the effect of extending your loan term.
  • Refinancing fees: You should factor in the cost of refinancing. Luckily, when refinancing with Discover Home Equity Loans, there is no cash required at closing.

Business Insider provides tips for graduates to pay down student loan debt. These include: applying an extra $25 a week toward the balance, cutting your cable bill, ditching your cell contract to opt for a month-to-month carrier, and closely tracking your loan payments through sites like Tuition.io. Lastly, the federal government offers helpful options such as deferment, forbearance, and income-driven loans known as IBR. In the end, any contribution on their end will aid in the repayment process.

There are multiple things to consider when paying off student loans and how your home equity may come into play, whether you’re paying off your own student loans or your child’s. Knowing your loan options is an important part of the process. Once you weigh the pros and cons, it becomes easier to make the right decision about how to pay off your student debt.

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