What You Should Know About Rolling Student Loans Into Mortgage

Ah, yes. The age-old question of: Should I use one loan to pay off another?This is known as "debt reshuffling" and doesn't have the best reputation because for most people, it's just trade one debt for another.  So when Fannie Mae introduced the idea that would make it easier for homeowners to swap their student loan debt for mortgage debt, there was certainly some hesitation. Keep reading to learn more about what you should know about rolling student loans into mortgage, and click this link to read the full article.

It’s awfully tempting to trade a 6.8% interest rate on your federal student loan for a 4.75% interest rate on a mortgage. On the surface, the interest rate savings sound dramatic. It’s also attractive to get rid of that monthly student loan payment. But there are things to consider.“One thing we stress big time: It worries me, taking unsecured debt and making it secured,” said Desmond Henry, a personal financial adviser based in Kansas.  “If you lose your job, with a student loan, there is nothing they can take away. The second you refinance into a mortgage, you just made that a secured debt. Now, they can come after your house.”

The cash-out refinance

The option to swap student loan debt for home debt has already been available to homeowners through what’s called a “cash-out refinance.” These have traditionally been used by homeowners with a decent amount of equity to refinance their primary mortgage and walk away from closing with a check to use on other expenses, such as costly home repairs or to pay off credit card (or student) debt. Homeowners could opt for a home equity loan also, but cash-out refinances tend to have lower interest rates.