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Home equity to pay off student loans?

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  • Home equity to pay off student loans?

    My remaining student loan burden is ~190K (refinanced with Laurel Road at 1.91%). <1.5 years ago it was almost 400K. Our house is worth 550-600K with 240K remaining on the mortgage at 4.35%. We are planning to move in the next few years and have been saving up a separate down payment side fund. Would anyone refinance the mortgage and take out home equity to pay off the student loans? Can you do this?

    I'm sure most will say to refinance the mortgage at a minimum. Honestly, I just haven't been too excited about doing a bunch of paperwork since we are planning to move in a few years anyway. Thoughts?

  • #2
    4.35% Yikes.

    Yes, this is a great idea whether or not a bunch of naysayers jump in saying no. One, you should have refinanced already, thats a terrible rate. Two, you'll be exchanging tax deferred, dischargeable debt for none of those benefits. You're still going to have more than enough equity.

    Would do this in a heartbeat.

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    • #3
      Originally posted by Zaphod View Post
      4.35% Yikes.

      Yes, this is a great idea whether or not a bunch of naysayers jump in saying no. One, you should have refinanced already, thats a terrible rate. Two, you'll be exchanging tax deferred, dischargeable debt for none of those benefits. You're still going to have more than enough equity.

      Would do this in a heartbeat.
      I agree with the refinance the mortgage because of the rate. 4.35% is so 2017.

      Our neighbor across the street sold their house in the last couple of months with similar specs so we have a direct comp to compare.

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      • #4
        Don’t refinance if you’re planning on moving in a few years.

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        • #5
          I doubt you will get a better rate than 1.9% on a home equity so I would not do it.

          4.35% is high in today's market but you have a relatively low mortgage amount of $235k. Look at a 5 or 7 ARM vs 10/15 year fixed refi. Focus on the mortgage origination fees and how long it will take to break even on the refi. There are refi calculators you can use like this:

          https://www.dinkytown.net/java/shoul...alculator.html

          Your breakeven should be less than 36 months, ideally within 18 months.

          Comment


          • #6
            Originally posted by ENT Doc View Post
            Don’t refinance if you’re planning on moving in a few years.
            This is the reason I have been putting off refinancing. But to be done with student loans makes it at least worth the discussion.

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            • #7
              Originally posted by TXDoc21 View Post

              This is the reason I have been putting off refinancing. But to be done with student loans makes it at least worth the discussion.
              Is the equity growth more than your loan interest rate?

              Comment


              • #8
                Originally posted by ENT Doc View Post

                Is the equity growth more than your loan interest rate?
                It absolutely is, has been and looks likely to remain that way going forward, sadly. Would you rather have mortgage or student loan debt? Student loan debt has zero benefit, while mortgage has so many and may even be deductible.

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                • #9
                  Originally posted by TXDoc21 View Post

                  I agree with the refinance the mortgage because of the rate. 4.35% is so 2017.

                  Our neighbor across the street sold their house in the last couple of months with similar specs so we have a direct comp to compare.
                  Refi was one of the first things I did when rates bottomed last summer/fall, it took 6 months, probably faster now.

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                  • #10
                    Originally posted by ENT Doc View Post

                    Is the equity growth more than your loan interest rate?
                    It's not just equity growth due to increase in home valuation. I paid about 50k extra to mortgage principal last year and we have also done several renovations to update the bathrooms and did a home addition.

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                    • #11
                      Originally posted by TXDoc21 View Post

                      This is the reason I have been putting off refinancing. But to be done with student loans makes it at least worth the discussion.
                      It’s a math equation. There’s costs to refinancing the home. When do the lower rates and lower payments allowing you to invest more outpace the costs of refinancing?

                      There are lots of calculators out there so just plug in your numbers. If breakeven is 2 years, as long as you stay there longer than that it makes sense. Shorter and it doesn’t.

                      Comment


                      • #12
                        Originally posted by Zaphod View Post

                        It absolutely is, has been and looks likely to remain that way going forward, sadly. Would you rather have mortgage or student loan debt? Student loan debt has zero benefit, while mortgage has so many and may even be deductible.
                        I’m probably missing something, but are you proposing to refinance to take cash out of a superiorly performing asset to pay off a debt that’s impairing net worth to a lesser degree?

                        Comment


                        • #13
                          Originally posted by ENT Doc View Post

                          I’m probably missing something, but are you proposing to refinance to take cash out of a superiorly performing asset to pay off a debt that’s impairing net worth to a lesser degree?
                          Yes, that is what I am asking. With extra 8-10K / month saved on student loan payments this will go to a blend of paying off more debt and invest more in taxable.

                          Comment


                          • #14
                            Originally posted by TXDoc21 View Post

                            Yes, that is what I am asking. With extra 8-10K / month saved on student loan payments this will go to a blend of paying off more debt and invest more in taxable.
                            Yeah but there’s no free lunch. This is a basic math question that requires a spreadsheet with a few assumptions. Have you considered making one?

                            Comment


                            • #15
                              Originally posted by ENT Doc View Post

                              I’m probably missing something, but are you proposing to refinance to take cash out of a superiorly performing asset to pay off a debt that’s impairing net worth to a lesser degree?
                              Wait, you're paying 8-10k/month in student loan payments? What is your rate and why do you hate money?

                              Originally posted by ENT Doc View Post

                              I’m probably missing something, but are you proposing to refinance to take cash out of a superiorly performing asset to pay off a debt that’s impairing net worth to a lesser degree?
                              Its a good trade, there is no value in the student loan debt vs. mortgage debt, mortgage debt is preferable, rates are close enough to be a wash and pushes you over with added benefits of mortgage, dischargeable, deduction, etc....

                              I personally (as is well known to anyone around here long enough), would of course not worry about either of these debts and let inflation, time and progression in life do their tricks.

                              Comment

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