What To Know About Rolling Student Loans Into A Mortgage
If you’ve decided you’re ready to roll your student loans into a mortgage, here are some tips to make the process easier.
1. Find A Low-Interest Rate
In a low interest rate environment, it’s an easy decision to refinance your debts into your mortgage. If current mortgage rates are higher you may have to do some careful comparison. If you have higher student loan rates, you can refinance the debt into your mortgage and save money on interest.
2. Consider Your Repayment Period
If you stretch your loan length, such as a 30-year term, make sure the total interest isn’t more than your student loans would have cost. To get the best interest rates and mortgage loan conditions, you’ll need good credit, low debt ratios and proof that you can handle the higher loan amount.
3. Don’t Forget Closing Costs
Then there are the closing costs to consider. Ensure they aren’t so high that they defeat the purpose of refinancing. If these fees drive up the cost of your student loans, rolling them into your mortgage might not be advantageous for you. Typical closing costs on a mortgage refinance are 2% - 6% of the loan amount.
4. Pick A Loan Program
If rolling student loans into your mortgage does make sense, you can use a conventional or FHA cash-out refinance or the Fannie Mae Student Loan Cash-Out Refi loan.
In a traditional cash-out refinance (conventional or FHA cash-out refinance), you borrow enough money to pay off your student loan, receive the proceeds and pay the student loans off yourself. You have a new, higher mortgage loan and only one payment each month.
With the Fannie Mae Student Loan Cash-Out Refi, the premise is the same, but to qualify, you must pay off at least one student loan in full, and the lender must pay the student loan servicer directly rather than giving you the proceeds. The only cash you may receive in hand is the lesser of 2% of the loan amount or $2,000.