Refinance home to pay off student loans?

[parkerscott]

WCI -

I'm a 4th year resident with 18 months left of training including fellowship.  I'm fortunate to only have $30,000 of loan debt at 6.8% but I would love to just get rid of it. I was presented with the following idea and I'm curious about your opinion/thoughts.

I have $80,000 of equity built up in my home. A friend suggested refinancing to a higher mortgage (currently owe 190K going to 220K) with a "no-cost" loan to get 25-30K cash out on the refinance and use that to pay off all the student loans. My current mortgage rate is 4.2% and depending on the market I could refinance to 3.8% or 4.0%. The broker also pays the fees.

Thus, in a sense this would be like refinancing my student loans into my mortgage going from a 6.8% to a 4.0% rate which is lower than sofi or DRB or whomever.  My monthly house payment wouldn't really change at all, but I would be done with student loans and get the tax break of paying them off as my mortgage.

The downside is that I lose the flexibility of 80K equity going to about 50K equity.  Which when I finish in 18 months I may be better off having the cash from equity then to put down for the next house payment...

Curious on anyone's thoughts.  Thanks!

-SP

[Zaphod]

If its only a few months and you've been in the house long enough (likely since resident) any money from the house will be tax and transaction fee free (and you definitely pay the fees, they are just rolled into the new mortgage). You can then just pay it off then and have money for your down payment fund since you will of course not consider buying anything until living and working with your new employer for 2 years.

[parkerscott]

Excellent points, thank you!  And yes, that is a great point about not buying anything for 2 years.