Using Home Equity To Pay Off Student Loans

Millions of Americans struggle to consistently pay their student loans. What if there is a way to use one of your most valuable financial assets — your home’s equity — to aggressively pay off your student loans?

Turns out, you may be able to do just that. Let’s break down how to use home equity to pay off student loans.

Can You Use Home Equity To Pay Off Student Loans?

Yes, you absolutely can. In fact, it could be the best choice for you.

The more you pay off the principal of your mortgage loan, the more you own your property outright. You build equity in your property by paying toward this principal. In other words, your equity is the difference between your home’s worth and how much you owe on your mortgage (plus any other liens). That equity can be used as a financial tool, such as collateral for various loans.

However, you can also use home equity to pay off student loans by “cashing it out” and then putting the money directly toward your student debts.

A student loan cash-out refinance is a new mortgage that you take out over your current mortgage. In other words, it’s worth more than the remaining mortgage principal. You pay off your current mortgage with a higher balance refinance, then use the difference to pay off your student loans.

Student loan cash-out refinance mortgages do have some terms and conditions:

• You have to repay at least one of your student loans in full
• You have to pay out a loan in your name, not someone else’s
• The money has to be sent to your student loan servicer at closing 

Imagine you have a home valued at $300,000. Your remaining mortgage principal is $200,000. Meanwhile, you have $40,000 in student loans.

If you take out a student loan cash-out refinance of $250,000, you can pay off the remaining mortgage balance, pay off your student loan, and still have $10,000 of money remaining.

Is Using Home Equity To Pay Student Loans Wise?

In many cases, it can be. You might consider using home equity to pay off your student loans if the following apply to you:

• Your student loans have high interest rates
• Your debt won’t go away, given your current repayment schedule
• You want to reduce the number of outstanding debts to boost your credit score, which can make other financial options more accessible
• You want to use the loan money from a cash-out refinance only to pay down your debt, not for something else

Keep in mind that when you are agreeing to any type of refinance, the term of the loan is restarting. Depending on the loan term you select, you may return back to a 30-year term.

What Are Some Alternatives to a Student Loan Cash-Out Refinance?

You don’t just have to use a student loan cash-out refinance. You can also access your home’s equity and pay off your student loans by:

• Taking out a home equity loan. With your home equity acting as collateral, you can use the cash from the home equity loan to pay off your student loans, then pay down the home equity loan over time (preferably with a better interest rate).
• Taking out a home equity line of credit (HELOC). As with a home equity loan, your equity acts as collateral. Your equity becomes a line of credit, which you can draw from up to a set limit. Then, you pay down the line of credit over time.
• Co-ownership with a partner like Balance.

Working With Balance To Pay Off Student Loans

Co-owning your home with Balance could be the best method for using home equity to pay off student loans.

When you contact Balance, we look into your home's equity, and, depending on its condition and the market, we may decide to take out an equity investment in the property. This means we become a co-owner of your property.

With the mortgage loan replaced by an equity investment, homeowners take out an average of $50,000, which could be just what you need to pay off your student loans. What’s more, you don't compromise your homeowner status. You remain the homeowner and don’t have to move. 

In place of a mortgage, you make a monthly payment to Balance to cover your occupancy and your share of the insurance and taxes.

All the while, we remain invested in your property over the long term. Balance has helped many individuals struggling under the burden of student and other loans — all without incurring the same risks as other home equity access methods.

Contact Balance Today

Overall, using your home equity to pay off student loans could be a smart idea, particularly if you work with Balance. In contrast to other equity access options, Balance lets you stay in your home, stops any risk of foreclosure, and maximizes your available income to pay down as much of your student loans as possible.

Want to know more? Schedule a call with Balance today.

Sources:

Understanding your home's equity | My Home by Freddie Mac

Paying Back Student Loans – How To, When & How Much Each Month | Debt.org

What is the student loan cash-out refinance option? | Fannie Mae

What is a home equity loan? | Consumer Financial Protection Bureau