We are going to refinance our home, out of an adjustable rate, and wondering if we should bundle our kids’ student loan debt into the mortgage. The student loan interest rate is high and simple interest; the mortgage interest lower, of course. We are at about 50% equity.
Should we continue to pay off the student loan debt or bundle it into the mortgage?
I hate to say this but it depends.
I’m not a huge fan of rolling debt you either do not owe or unsecured debt into a mortgage. If you can’t pay the mortgage in the future, you can lose your house. And rolling debt into a mortgage just makes the mortgage payment higher.
If you are refinancing into a fixed-rate mortgage, good for you. I’m not a fan of adjustable rate mortgages. And I always suggest going for the 30-year mortgage rather than the 15-year. You can always payback a 30-year mortgage at the 15-year rate but if something happens in your life where you need some breathing room, you can drop the payment back rather than going into default.
You’ve said there are your kids’ student loans. Unless you want to assume the debt I would not pay them off and wrap them in. But if you want to take over all the responsibility for their loans then the cash out refinance would be a way to do it and get a bit of a tax deduction out of paying them off this way.
If the student loans are private student loans it makes it an even better idea to pay them off if you are willing to accept the risk. If the kids run into life trouble, private student loan lenders have few, if any, accommodations to help them make the payment.