Should a mortgage be refinanced to pay off a student loan?



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If you have a large student loan, it makes sense to repay it with cash refinancing money. This is commonly known as “student loan cashing refinancing”.

The rise in the cost of home equity can help you qualify for cash-back refinancing and borrow more money. According to data from CoreLogic, in the first quarter of 2021, mortgage homes acquired $ 33,400 in net worth, the largest average capital gains in at least a decade.

But before refinancing your mortgage to pay off your student loan, it is important to know what it is, what disadvantages you may face, and what alternatives to consider:

What is Student Loan Cashing Refinancing?

Student loan repayment refinancing is a mortgage that allows you to use your equity pay off your student loan balance. This means that you are consolidating your mortgage and student loans into a new loan.

You can also lower the interest rate you paid on your education debt, saving you more money in the process.

In order to qualify, you will generally need to use cash to pay the full student loan in your name. On closing, the lender will send the cash directly to the student loan support service.

For example: Let’s say your home is valued at $ 200,000, your mortgage is $ 100,000, and you owe $ 50,000 in student loans.

You can refinance your student loan cash repayment totaling $ 150,000, and your mortgage lender would use that $ 50,000 to pay off your student loan.

To find out: How to Refinance Your Mortgage in 6 Easy Steps

Types of student loans cashed and refinanced

If you want to use your home equity to pay off student loans, you have two options:

  1. General refinancing when cashing out
  2. Refinancing Student Loan Repayment Through Fannie Mae

General refinancing when cashing out

When you make a general cashing refinancing, you take out a new mortgage for more than your debt, put money in your pocket, and eventually pay off the new mortgage. The money can be used for any purpose, including paying off student loans.

To qualify, you generally need to have:

  • Credit rating not less than 620
  • Debt to income ratio less than 50%
  • At least 20% of the home equity in your home after closing cash refinancing

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Fannie Mae Student Loan Solutions

Fannie Mae’s Student Loan Solutions program is designed to help student loan borrowers better manage their monthly payments and apply for a mortgage loan. One feature of the program allows homeowners to pay off their student loans using home equity at lower rates.

Eligibility depends on several factors:

  • Refinancing funds with cash disbursements must fully repay at least one student loan.
  • The student loan must belong to the borrower who is applying for refinancing.
  • The loan must be signed through Desktop Underwriter, Fannie Mae’s automated underwriting system; manual underwriting not allowed.
  • For a one-piece property, the borrower will need to meet the standard cash-in-place refinancing requirements, including: a credit rating of at least 620, a DTI of 50% or below, and at least 20% of the home’s equity after closing.

Pros and Cons of Student Loan Cashing Refinancing

Student loan repayment refinancing pays off your student loans and can help you save money in some cases, but keep in mind that you will be responsible for the new mortgage.


  • You can get a better rate. Student loan cashing refinancing usually has lower rates compared to other lending options such as personal loans and loans secured by real estate… So, if you meet the requirements, you will probably save money in the process. Make sure you calculate the total interest as a longer term may result in more interest being paid.
  • You may be eligible for certain tax breaks. For example, the interest you pay on a student loan is usually tax deduction… In some cases, the same goes for mortgage interest. The catch is that, unlike a student loan interest deduction, you will need to detail your taxes in order to save on mortgage interest.
  • You simplify your payments. Combining two loans into one simplifies your payments, which can help you organize your finances and ensure that your bill is paid on time.


  • Student loan debt does not disappear. When you take money out of cash-to-cash refinancing to pay off a student loan, you are shifting the debt from one place to another. You can save money in the process, but you still have to pay the price.
  • You are giving up certain protections for the borrower. If you repay your federal student loan with cash-back refinancing, you are missing out on important borrower protections such as income-based repayment plans and generous job opportunities.
  • You run the risk of foreclosure: By refinancing your mortgage to pay off student loan debt, you are converting what was once unsecured debt into secured debt. This means that your home is being used as collateral. If you find it difficult to make a payment on your new mortgage, you risk losing your home

When to Consider Refinancing Student Loan Cash Payments

Before applying to refinance your student loan cash disbursement, ask yourself the following questions:

  • What is the interest rate on my student loan? Shifting your debt from a variable rate student loan to a fixed rate home loan can help make debt repayments more predictable.
  • Can I Save Money By Including Student Loan In My Mortgage? If your interest rate on cash-back refinancing is lower than your student loan rate, you are likely to save money. Calculate how much interest you will pay on the original loan and by refinancing. You may not save money if you extend the loan term too much.
  • What is my student loan? It may not make sense to invest a federal loan in a mortgage because you will lose important borrower safeguards such as abstinence, deferral, and income-driven repayment plans. But borrowers with private student loans can come out ahead when refinancing.
  • What are my other options? You can always refinance your student loans by making it less risky interest-term refinancing, or pay two weeks on your student loan if you’re looking for ways to save money.

Alternatives to Refinancing Student Loan Cashing Out

Using your home as collateral can be risky, so if you want to play safer there are other options. payment of student debt

Refinance your student loans

When you refinance a student loan, a private lender pays off your balance and issues you a new loan based on your creditworthiness. This can help you save money and lower your payments if you are eligible for a student loan with a lower interest rate.

With your savings, you can make larger student loan payments and pay off your balance faster.

Remember that while you can refinance a federal student loan from a private lender, this is not always a good idea as you will lose some of the borrower’s safeguards. Use student loan refinancing calculator to see if the refi makes sense.

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Refinance your home at rate and time

Refinancing a mortgage at a rate and term involves obtaining a new mortgage at a new interest rate, a new loan term, or both. You will not borrow cash as part of the deal, if you lower your mortgage payment, you can use the savings to pay off your student loan debt.

Mortgage experts consider refinancing a smart move if you can lower your interest rate by at least 0.75%.

Student loan payments every two weeks

Most borrowers only require one student loan payment per month, but you can pay every two weeks instead. By paying off your student loan every two weeks, you will cut your bill in half and will pay that amount every two weeks.

With this strategy, you will actually make 26 half payments or 13 full payments over the course of a year. This can speed up repayment and potentially help you save money as interest will be charged on a smaller balance.

about the author

Kim Porter

Kim Porter is an expert in loans, mortgages, student loans and debt management. She has been featured in US News & World Report,, Bankrate, Credit Karma and others.

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