Fannie Mae now allows homeowners to refinance their student-loan debt into their mortgage debt. Although that might appeal to some, because mortgage loans typically have a lower interest rate, borrowers who take that step might lose out, experts say.
For example, a borrower who has a modified adjusted gross income (MAGI) of less than $80,000 can reduce his/her MAGI by up to $2,500 by taking a student-loan interest deduction on his/her income-tax return. Conversely, the same person wouldn’t enjoy a mortgage-deduction benefit unless his/her mortgage exceeded the standard deduction.
In addition, converting student-loan debt into mortgage debt means that you can’t take advantage of student-loan repayment options, such as deferment or forbearance, to put off payments if your finances change.
The decision on whether you should refinance your student-loan debt into a mortgage depends on a number of factors, accountant Leonard Wright says. In general, it makes sense for you to combine the debt if your income exceeds $65,000, your student-loan interest exceeds $2,500, you can get a mortgage-rate reduction of at least 1 percent, and you have no more than $100,000 of nonhousing debt on your mortgage, Wright says.