Did you buy your house at a fantastic price during a recession? Has it risen sinWhy using home equity to pay off student loans is always a bad ideaa then?
If so, then most likely you have a lot of justice in your home. This makes it possible: you can “cash” money by refinancing a mortgage or opening a loan secured by real estate at a low interest rate.
So, should you use this capital to pay off your annoying student loan debt?
Problems of using Home Equity to pay off college debt
Student loans and home equity do not mix. Let me repeat: using a mortgage loan to pay off student debt is a terrible idea that could hurt your finances and your family. No matter how attractive it may seem at first glance, do not risk your financial security and your home to pay off student loans. Financial risk is not worth it.
I know you probably think: “But why not? I could pay off all student loan debt and be free and clear. In any case, I’m already paying the mortgage. “Let’s look at all the reasons why this is a bad idea:
You really do not repay your loans.
You really do not pay anything, you just shuffle your debt – a student loan debt essentially moves from one account to another. It is not repaid, you still have a debt, and now it is just under a new name. Instead of “debt on student loans” will now be “debt on equity loans.”
This new debt may have a lower interest rate (or not), depending on your interest rates on student loans. But it also carries additional risks. And this leads to my next point …
You put your house at risk.
Taking this balance against the value of your home can jeopardize your family in case of financial emergencies. What happens if you suddenly find yourself fired from your job or face huge medical bills? What happens if you can no longer afford loan payments?
If you turn your student loan debt into a stock loan and you cannot repay the loan, you may lose your home because of the foreclosure.
At best, you can “sell off” your house, which means that you sell it less than your debts to the lender. Even at the best, but you still lose your home.
Student loans are unsecured debts, which means they are not guaranteed by any physical means, such as a car or a house. If by default you do not pay student loans, there is a risk that your salary may be increased or you will never receive a tax refund. But your lender will not go for your house.
If you transfer unsecured debt (student loans) into secured debt (refinanced mortgage or housing mortgage), your house suddenly becomes unusable.
You can get a higher interest rate than you started.
If you do not fully understand the conditions underlying your loan, you can unknowingly transfer your debt to an account whose interest rate may be even higher than the student loan debt after the end of the introductory period.
Not all stock loans have a fixed interest rate, and you can adjust yourself to the interest rate if you don’t pay attention to the fine print.
You will not be able to participate in forgiveness programs.
If you make regular payments on student loans, you may be eligible to write off or cancel student loans. Turning your student debt into a capital loan immediately deprives you of the right to any federal program that helps you pay it off. If you want your options to be open to programs for writing off or writing off debts, never transfer your loans into a private loan, do not combine them with other debt, and do not exchange them for equity loans.
For more info : https://studentloansresolved.com/