College has become more expensive every year, and student loan debt continues to increase as a result. One option that may be beneficial to lowering your monthly student loan bill is using the equity you’ve built in your home to refinance your loan into a lower rate.
When refinancing with a home equity loan, the lender requests “payoff” figures for all amounts (your student loans and other loans you may want to consolidate) and rolls them into one new mortgage or a new loan. For example, let’s take a mortgage with a $100,000 balance and two student loans each with a $20,000 balance. The newly refinanced loan would then be $140,000 and can be amortized over 10, 12, 15, 20 or 30 years (terms can vary depending on the lender), potentially resulting in lower overall monthly payments and interest, depending on the terms and rates of your other loans.
Here are the top questions to ask before refinancing student loans:
What term options are available for me? Loans of all types have set terms at which the loan balance is paid in full. It might seem beneficial at first glance to take the shortest term to get the student loan paid off sooner. That’s true, but shorter loan terms also mean higher monthly payments. Longer terms will have lower payments, but more long term interest paid over the life of the loan. It’s best to select the shortest loan term you can comfortably afford to pay each month, and you can always pay extra each month if you can afford it. Discover Home Equity Loans has home equity loans of 10, 12, 15, 20 and 30 years.
Can I lock this rate down? When refinancing student loans, the loan may have a fixed or a variable rate. A variable rate may have a lower initial rate compared to a fixed rate but a variable rate is so-called because the interest rate can change over the life of the loan. When rates overall are relatively low, it’s prudent to lock in a fixed rate. Discover Home Equity Loans has fixed rate loans ranging from 4.99%-11.99%.
What fees are associated with this loan? You should always understand what fees come with the loan. A common charge is called an “origination” fee and is expressed as a percentage of the loan amount, possibly 1-2% of the amount borrowed. Other common fees include application fees, appraisal fees and closing costs. Discover Home Equity Loans does not charge origination fees, application fees, appraisal fees or cash due at closing.
What about credit scores, what is the minimum credit score to qualify? Overall, the better the credit score, the better your interest rate will be. Discover Home Equity Loans offers loans with credit scores as low as 620.
If you’re interested in learning more about refinancing your student loans using home equity, talk with a Discover Personal Banker today at 1-855-361-3435. Or, request a quote online and we’ll call you back.