With the average undergraduate leaving college with $30,000 plus of debt and with no plans to purchase a home anytime soon, mortgage lenders are starting to get more creative.
Mortgage lender Fannie Mae, for example, has laid out a plan for student loan borrowers, and parents who have cosigned loans, to trade student loans for mortgages, offering incentives which might be worth a look.
- First, by expanding cash out mortgage refinance options, borrowers can roll a higher interest student loan into a lower interest mortgage loan, saving borrowers money. The program offered by lenders such as Fannie Mae not only apply to students but also to parents who have borrowed on their child’s behalf.
- Allowing borrowers to exclude debt being paid by others when applying for a mortgage helps people wanting to enter the housing market get approved.
- Flexible repayment programs based on a borrower’s income are now up and running. More than 5 million student loan borrowers are on flexible repayment plans already, allowing them to pay more when they earn more and less when they don’t.
Some quick takeaways to consider:
Student loans are unsecured debt, while a mortgage is secured by the home.
A mortgage loan does not offer the same consumer protections such as forbearance or deferral that a federal student loan offers if a borrower become unemployed.
The most recent interest rates on federal student loans are 3.76% and Plus loans at 6.31%. Borrowers with older loans may have interest rates into the double digits. Refinancing might make financial sense depending on your unique circumstances.
When people are in a difficult financial situation, knowing what strategies are available to them can help turn the tide. If you would like more information regarding bankruptcy protection as part of an overall plan to financial recovery, contact the Peoria bankruptcy law offices of Charles E Covey for a free consultation at 309-674-8125.
