Elsie Said:

Should I Refinance My House to Pay off Student loan?

We Answered:

I wouldn't do that. I would look to refinance the student loans if possible, but not into the house. When you add a bigger loan against your house, you add risk to your life. If you lose your job you can put student loans on hardship deferral until you find another job, but you can't do that with a mortgage. Also, if you die your federal student loans are canceled but a mortgage has to be paid off. That could be the difference between your spouse, kids or parents inheriting an almost paid for house, or them inheriting a house they have to sell to pay off the mortgage.

I agree you should look for a way to lower your interest rate on the student loan, but don't turn it into a lien against your house that could result in you being foreclosed if you lose your job.

One more thing: Student loan interest is a better tax deduction than mortgage interest. That's because student loan interest is deducted before your AGI. This lowers your adjusted gross income which may help you qualify for other deducitons and credits. Also, you can deduct student loan interest and take the standard deduction which is not the case with mortgage interest.

When you consider taxes and risk, its not mathmatically correct to refinance even though you lower your interest rate by 1.25%.