Student loans are a problem for a lot of borrowers who are trying to qualify for a mortgage and for some they often create monthly cash flow problems. What if we told you that you can refinance your student loans into your mortgage?
When you refinance your mortgage, it is put under one of two categories, rate/term or a cash-out refinance. A rate/term refinance means you are just refinancing the existing balance of your current mortgage. You may do this to get a lower interest rate, remove monthly mortgage insurance premiums, shorten your existing loan term or some combination of all of the above.
If you refinance into a loan that is larger than your current outstanding loan balance, this is known as being a cash-out refinance. Borrowers often elect to do this to consolidate debt, have extra cash on hand or even use the cash to help with the down payment of financing another property. Generally speaking, when a borrower chooses to pull cash-out from their refinance, they typically end up with a higher interest rate than if then did a rate/term refinance.
Student loans, however, are categorized differently. If you consolidate your student loans with your mortgage, you will not be hit with a higher rate adjustment and will end up with an interest rate that is the same as if you were doing a rate/term refinance.
This could help open extra cash flow each month by not having to make two separate payments for your mortgage and student loans. If your student loans have a high interest rate, this may also help you lower your interest rate and avoid unnecessary interest expenses.
Consolidating your mortgage and student loans into just one fully amortized loan rather than two, can help you with your monthly cash flow. Some may say, “My student loan repayment plan has me paying off my loans in 10 years.” If you can stick to that plan, great, but for many it takes more than 20 years to actually paying off their student loans.
If paying off your student loans is going to take you 20 years (or longer) why not explore consolidating them with your mortgage? The cash flow savings you get by consolidating the loans could be used to make extra payments towards your mortgage or put into a savings account for a rainy day.
Each borrowers’ situation is unique so feel free to give us a call at 760-930-0569 to discuss if consolidating your student loans into your mortgage is the right option for you.