Can You Consolidate Your Student and Mortgage Loans? Here’s What the Experts Have To Say

Most Americans find ways to manage their debts efficiently. From their credit card debts to car and salary loans, the Americans are looking for ways to consolidate these debts into one big loan to minimize their interest rates. Can millennials do the same thing for their student loan debts and mortgages? The good news is, financial experts say you can get this option.

Refinancing Your Mortgage Loans

According to financial experts, most Americans carry the burden of paying two major debts during most of their lives: the mortgage and student loans. According to the Federal Reserve‘s latest report this year, the student loan debt increased to an astounding $1.5 trillion, trailing behind the mortgage loans with a staggering $9 trillion.

The renowned mortgage loan company Fannie Mae offers the student loan cash-out refinance feature for mortgage investors with student loans. This option enables the investors and applicants to pay off their student loan debt by refinancing their mortgages. The company then will waive the loan-level price and cost of price adjustments depending on the borrower’s risk factors like the debt-to-income ratio and credit score.

According to financial experts, consumers could pay 1% of their student loans to become eligible to the arrangement.

Though it might seem good to eliminate another debt and reshuffle it into one debt, the financial experts advise that debt reshuffling is not magic. You’ll still owe the same amount of money as you had in two debts. However, you’ve just changed the terms of payment and conditions as well as the interest rates.

According to Everyday Millionaires financial coach Chris Hogan, debt shuffling enables you to get rid of your student loan faster by attaching that debt to your home’s equity. Hogan encourages borrowers to think carefully before making this consideration.

The Benefits

The major benefit you get from refinancing your mortgage is that you can significantly reduce the interest rates you pay for your student loan debt. As a borrower, you can potentially save more money compared to those who pay their subsidized federal student loans.

According to the latest report, the average interest rate for a 30-year fixed mortgage was at 4.41% in August 2018 compared to a subsidized federal student loan at 5%. While the direct unsubsidized loans were at 7.7% and the Direct PLUS loans is at 8%. Despite the higher interests rates, the financial experts say that most student loans are only payable for 10 years (or shorter terms) compared to mortgages which usually spans up to 30 years.

According to the National Consumers League executive director Sally Greenberg, it usually takes careful consideration financially savvy to roll your student loans into your home loan, especially since the former usually has higher interest rates than the latter.

The Challenge

The challenge in consolidating student and mortgage loans, however, is that the fine print document paperwork can become confusing or misleading. According to Greenberg, there might be some hidden fees or arrangements buried in the fine print which may end up costing you more than just paying your student loans.

Greenberg adds you should talk to someone you can trust to prove to you whether or not the rolling out option is better for your finances or not. It’s also important to seek advice from someone working independently in the industry so that their views won’t be biased compared to consulting a company who offers mortgage refinance.

Losing Your Protection

Aside from the costs, you should also be prepared to lose your valuable protection should you decide to consolidate your student and mortgage loans. According to Greenberg, you’ll most likely give up your inherent benefits if you roll out your student loans.

For example, you may apply to have your student loan deferred in case you lose your job. This means you can stop paying for student loans, or your payment will be reduced if you refinance your student loans. However, you won’t be eligible for the federal loan forgiveness program.