I have to give credit, I first heard about this program from Angela & Howard a few weeks ago. Angela & Howard do the Real Estate show that airs before we do, and if you haven’t listened to them, you should, because they have a ton of good information. The product they were talking about is a new program from a company called SoFi, which is a nonbank lender.
The product, called the Student Loan Payoff Refi, is backed by the government organization Fannie Mae, and it is an interesting concept that could benefit as many as 8.5 million households. The concept is pretty simple; people who own a home, have some equity, and also hold student loans refinance this debt into one, larger mortgage with a lower interest rate. The total payment goes down, the total interest paid over the life of the loan is lower, and all of your interest is now tax-deductible.
This is not altogether a novel concept, people have been taking cash-out refi’s or HELOCs to pay off student debt for years, mainly because the interest is tax deductible. However, this program has the added benefit that they won’t consider your current mortgage payment or your student loan payment in calculating your debt to income ratio, which gives you a boost.
There is some downside to this plan, too. Student loans are incredibly flexible, and offer different payment options if you run into difficult times. For instance, if you lose your job, you can ask to defer your student loan payments while you find a new job. Try that with your mortgage company, and they will probably begin foreclosure proceedings. Additionally, if you are on an income based repayment plan that will forgive the remainder of your debt after 20 years of payments, you should not consider this option.
However, if you have private loans with interest rates above 6%, and equity in your house, this is something that you should run the numbers on and see if it makes sense for you.