Recently, Fannie Mae introduced a new mortgage program that allows for a refinance of an existing mortgage and the payoff of student loan debt without the new mortgage being treated as a cash-out refinance. The difference in the interest rate between a no-cash out refinance and a cash-out refinance can be anywhere from .25% to .5%, depending on the credit score of the borrower.
For example, if a no cash-out refinance would get an interest rate of 4%, the same cash-out refinance would get an interest rate of 4.25% to 4.5%, depending on the credit score of the borrowers. . For lower credit scores, the difference may even be greater.
A lower interest rate will reduce the monthly mortgage payment and when combined with the savings from the elimination of student loan payments, the total monthly savings may be substantial depending on the borrower’s circumstances. Not to mention the student loans will be paid off and will not be a factor for a future mortgage or other loan applications. Additionally, the interest rate on the mortgage debt may be substantially lower than the interest rate on the student loan debt.
As with most mortgage programs, there are specific eligibility requirements that must be met. We can prepare a free mortgage analysis to determine if such a strategy would be financially advantageous based on each individual’s unique circumstances and whether the eligibility requirements are met.
If you have questions or are interested in having a mortgage analysis prepared to see if this program could benefit you, please contact us.