Is It Better to have Student Loans or a Mortgage?

Question

My wife and I owe over $150,000 in student debt with interest rates around 9-11% on each loan. Is it better to just refinance our house and pay it all off, for a lower monthly payment and interest rate?

To further clarify, our house is appraised at $250,000. We came into an inheritance and paid it off so we have no mortgage payment currently. Since we had to relocate to a new state, we are both unemployed and these payments are taking a toll on us. I'm sure we can get a rate on the home loan under what the school loans are charging us, and this way we can raise our credit score with a mortgage payment and have greater tax deductions? What do you guys think?

Answer 1

If you already have a home mortgage definitely refinance and pay off your high interest student loans. A mortgage looks much better on a credit report than old high debt student loans. However, if you don't already have a home mortgage I would never get one for that reason. Any time you mortgage your home you are open to lose it if anything happens.

Answer 2

refinance. especially if the interest rate on the mortgage is lower than your student loans. Besides your home will continue to gain value and if/when you decide to sell all that money comes right back to you.

Talk to a trusted mortgage broker or financial adviser. Talk about a refinance. If a refinanced mortgage would be lower monthly cost then your payment now, do it.

The best thing to do is get out of debt with student loans, credit cards, etc...

Answer 3

You are comparing apples to oranges. These 2 loans are for completely 2 different purposes and both are considered "good" loans vs "bad" loans (ex. credit cards, car loans etc..). You get more tax deductions with a mortgage loan and it is an investment. On the other hand, a student loan is also an investent (for your future) and you also get a tax deduction but only up to $2000.00!

Answer 4

Generally speaking, I think, one is better off staying with education loans, rather than refinancing their home, to pay off their education loans. There are a number of benefits; you may have, that you will loose, if you refinance your house, to pay off your education loans. They are as follows: a death benefit, easy forbearance, easy refinance, thirty year amortization.

You may also, want to reserve the equity in your home, for other purposes, e.g., investment property, second home, cash purchase of motor vehicle purchases. Since, you have that much equity in your home, you may want to consider refinancing, without taking cash out, in order to get a lower interest rate.

Have you considered, consolidating your education loans? Once a loan, or loans, are consolidated, the interest rate is fixed. I consolidated with the U.S. Department of Education, i.e., http://www.ed.gov/offices/OSFAP/DirectLoan/index.html. My interest rates are fixed, lower, and my payments are spread over thirty years. Should I expire before the note is paid; it will be discharged.

One other factor, to consider, is how mortgage interest is handled on your federal income tax return. Education loan interest, has a cap. However, it reduces your adjusted gross, which has a multitude of positive ramifications. Mortgage interest, goes in with your other itemized deductions. Also, I am not sure, if you can deduct mortgage interest, on your federal tax return, if you use the money to pay off education loans, rather than reinvest it in your home.

Answer 5

your idea will only work, if only if the interest rate for your home is lower, and you can pay off all your student loans. if you are planning on paying only for part of your school loan, then it is a bad idea. good luck.

Answer 6

Wow, thank you! Just what I was searching for. I tried looking for the answer on other websites but I couldn't find them.

Answer 7

that depends.... what will your mortgage rate be? go with the lowest rate unless you plan on paying it off very soon.

Answer 8

Sound arguments here.

Answer 9

definetely i would good idea