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Knowledge Hub / Rolling Student Loans Into A Mortgage
Rolling Student Loans Into A Mortgage

Rolling Student Loans Into A Mortgage

Living with Student Loans
ELFI | May 2, 2024
Rolling Student Loans Into A Mortgage

Mortgages and student loans are among the two most common types of consumer debts in the U.S. Per the Federal Reserve, home loans total around $17.05 trillion, while total student loan debt sits around $1.60 trillion. 

Since many borrowers have student loans from multiple loan servicers, rolling student loans into your mortgage could be tempting. Doing so will result in fewer monthly payments. But there are several factors to consider before moving forward with this strategy.

Can You Roll Student Loans Into A Mortgage?

You can roll your student loans into your mortgage if you’ve built enough home equity. But just because you can doesn’t necessarily mean you should. Here’s what to know and why this approach may not be the best solution for consolidating debt. 

You have three options to roll your student loans into your mortgage.

1. Cash-Out Refinance

You can use a cash-out refinance to pay off student loan debt. With this type of refinance, you use your home equity to refinance your existing mortgage into a new, larger loan. You can then take the difference between your former loan and the new mortgage in cash and use those funds to repay your student loan balances. 

2. Fannie Mae Student Loan Cash-Out Refinance

The Fannie Mae Student Loan Cash-Out Refinance works similarly to a traditional cash-out refinance you’d complete with your chosen lender. But this option comes with fewer fees than a traditional cash-out refinance, and Fannie Mae pays your loan servicer directly. This service can save you the extra step of paying your loan servicer on your own. 

3. Home Equity Line of Credit (HELOC)

HELOC or home equity loan can also pay off your student loans. With a HELOC, you’ll get a credit line you can draw from, generally for a 10-year period. During the draw period, you typically make interest-only payments. At the end of that period, you’ll enter the repayment period, which often ranges from 5-20 years, and you’ll need to repay the amount you’ve borrowed with interest. 

Unlike a HELOC, a home equity loan lets you borrow a lump-sum amount against your home’s equity. You can then use those loan proceeds to repay your student loan debt.  

Pros and Cons of Rolling Student Loans Into Your Mortgage

There are benefits and drawbacks to rolling student loans into your mortgage. Here’s what to know. 

Pros

Cons

Should You Roll Student Loans Into Your Mortgage?

When rolling your student loans into your mortgage, the negatives generally outweigh the positives. While you might get a lower monthly payment, you’ll likely have a higher interest rate in the current rate environment. You’ll almost certainly pay more interest over time, and your home will be on the line if you default on your payments. 

Those struggling to manage their student loan debt should look at other alternatives before borrowing against their home. 

Alternative Refinance Options

Speak With ELFI To Understand Your Refinance Options 

If you decide that refinancing your student loans with a private lender is wise, ELFI offers competitive refinancing options. You may reduce your payments by refinancing and benefit from fewer monthly payments to manage. Learn more about student loan refinancing with ELFI.