Author Topic: Refinance to pay off student loans?  (Read 3024 times)

clarkfan1979

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Refinance to pay off student loans?
« on: June 05, 2014, 07:44:50 AM »
I bought a house 2.5 years ago for 95K. I put 5% down and currently owe 83K on the loan. It is currently worth about 145K. I have 51K in student loan debt. It is approximately 34K at 6.88% and 17K at 2.88%. If I do a cash-out refi with my credit union, I need to leave 20% equity. This means after closing costs (3,500), I could end up with a check around 30-35K. I currently have a 30-year mortgage at 4%. I could refi into a 15-year at 3.125%. Wouldn't it make sense to re-fi into a 3.125% loan and pay-off the student loan portion of 34K at 6.88%?

 

Thegoblinchief

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Re: Refinance to pay off student loans?
« Reply #1 on: June 05, 2014, 07:59:07 AM »
Probably, especially since you also reduce the mortgage rate.

How much could you prepay the student loans per month? Compare the interest cost over the repayment time with the $3,500 in closing costs. Pick whichever scenario "wins".

skunkfunk

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Re: Refinance to pay off student loans?
« Reply #2 on: June 05, 2014, 08:08:57 AM »
I suspect you will be getting killed by closing costs. The closing costs are 10% of what you will be getting rid of on the student loans - that is significant. That's 3 years worth of interest right up front.

frugaliknowit

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Re: Refinance to pay off student loans?
« Reply #3 on: June 05, 2014, 08:40:19 AM »
You would have to be in a very hot real estate market for your estimated value to be that high.  Even if true, beware that lenders are very gun shy about cash out refi's.  They'll "talk a big game", then when it's time to do the deal they might come up with many reasons why they won't value your house that high.  Keep in mind you just paid a bunch of fees to close the house, now you are going to pay about 2-3% (perhaps more, depending on where you live...) again.

I wouldn't do it.  Just focus (first) on paying the higher interest rate student loan by being extremely mustachian. 

clarkfan1979

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Re: Refinance to pay off student loans?
« Reply #4 on: June 05, 2014, 10:34:22 AM »
Based on the responses, I wanted to add a couple points.

1. I'm certain the closing costs are around 3,500. If I did refi, it would be with the same credit union that I used when I bought.

2. I think the value of 145K is conservative. I bought a foreclosure in Florida at the bottom that needed significant repair. I put 16K into the house and a lot of sweat equity. Comps are selling for more than 145K.

I currently pay $500/year in PMI. By paying the minimum mortgage, I will be paying PMI for 3 more years. If I refi I will stop paying PMI immediately. With the cash-out re-fi my total mortgage payment (including taxes & insurance) will jump from $663 (including $42 PMI) to $999 (no PMI).


bugbaby

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Re: Refinance to pay off student loans?
« Reply #5 on: June 05, 2014, 09:00:03 PM »
Since you eliminate PMI I'd do it in your shoes.  If you finance 120k, the savings in interest is approx 744/ year  ie 85k*4- 3.125 , plus 500 PMI =1244/ year just on mortgage portion.  Then on student loan 35*6.8-3.125 =1286   Total saved 2530 first year,  so in 2 years you're ahead .

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