Rolling Student Loans Into a Mortgage

Can you roll student loans into a mortgage?

You can’t literally combine student loan balances with your existing mortgage, but you can use your home equity to pay them off. This effectively “rolls” the debt into your mortgage by replacing your student loan payments with higher mortgage payments.

What is home equity? 

The equity in your home is the difference between the value of your home and the remaining balance on your mortgage. In other words, if you sold your home, the equity is what you’d walk away with (after fees).

Several types of loans let you access your home equity, including:

• Cash-out refinance loan
• Home equity loan (second mortgage)
• Home equity line of credit (HELOC)
• Reverse mortgage (less common, typically for older homeowners)

How does rolling student loan debt into your mortgage work?

To roll your student loans into your mortgage, you have to refinance your current mortgage and use the equity to pay off your loans in full.

“Rolling” a student loan into a mortgage is really shorthand for using home equity to pay off student loans and replacing them with mortgage debt.

Whether you choose a cash-out refinance or another type of mortgage refinance option, you would take your proceeds and pay your student loans up to the “paid-in-full” amount. This eliminates your loan balances, and you no longer need to make payments.

Example of rolling a student loan into a mortgage

Let’s say your house is worth $500,000. You owe $300,000 on your mortgage.

You can save on interest if your mortgage rate is lower than your student loan rate.

You might be able to borrow $100,000 through a cash-out refinance. In this scenario, you’d get a $400,000 loan and pay off the $300,000 you owe on your remaining mortgage balance. The remaining $100,000 goes directly to your bank account.

You then use the $100,000 to make a direct payment on your student loans to effectively pay them off.

Now, you’ll start making payments on a $400,000 mortgage over whatever loan term length you choose. If you choose a 30-year mortgage, you’re paying on your student loan debt for 30 years, which could cost you more in interest than your original loan payments.

Pro tip

Fannie Mae’s Student Loan Cash-Out Refinance program lets you get a traditional cash-out refinance mortgage with lower fees. Fannie Mae then pays off your loan servicer directly, making it even easier to roll your student loans into your mortgage.

» RELATED: Should you refinance your house to pay off student loans?

How to roll student loans into a mortgage

If you want to use your home equity to pay off student loans, here’s what the process usually looks like.

1. Review your home equity

Find out how much equity you have in your home. Lenders generally let you borrow up to 80% of your home’s value (this is called the loan-to-value ratio, or LTV).

For example, if you have $100,000 in equity, you can usually access up to $80,000.

2. Choose a loan type

Once you know how much equity you can access, you must pick a loan type. A cash-out refinance is a great fixed-rate option, but a HELOC may be a quicker process and more flexible for your needs.

3. Apply for your home loan

You’ll need to complete an application for your chosen loan, including providing personal and financial information. Make sure you have good credit. Otherwise, you’ll pay a higher interest rate.

4. Provide documentation

Along with identification to complete the loan application, you may need to provide: 

• Bank statements
• Tax returns
• Pay stubs

5. Use funds to pay off student loans

Once approved for a home equity loan, the funds are usually deposited into your personal account. Make sure to use those funds to pay off your student loans right away so you can stop making payments on the loans and only focus on your new mortgage payment.

Pros and cons of rolling student loans into a mortgage

While rolling your student loans into your mortgage can possibly lower your payment and help you consolidate multiple loans, there are some risks. Here are the pros and cons of paying off your student loans with your mortgage.

What to consider before consolidating student loans into a mortgage

Before choosing to roll your student loans into a mortgage refinance or HELOC, there are a few things you should consider:

Can I afford the payments?

Before rolling your student loans into your home mortgage, you need to carefully review your finances to ensure you can actually afford the monthly payments. If you miss payments or end up defaulting on your mortgage (or HELOC) because the payments are too high, you risk foreclosure on your home.

Interest rates and loan terms

It’s important to review the interest rates and your loan terms to make sure you’re getting the best deal. Compare rates from multiple mortgage lenders and ensure that the loan length is similar to your student loan payoff plan so you don’t pay extra interest.

Tax impact

Consider the tax implications of paying off your student loans and whether it’s worth refinancing to pay off your loans.

Loan costs vs. savings

Most mortgage refinances come with origination fees and other loan costs. So, it’s important to review the costs and calculate the potential savings before choosing to roll your student loans into your mortgage.

Alternatives to rolling student loans into a mortgage

If you’re looking to lower your student loan payments or lower your interest rate, there are other options besides rolling your loans into your mortgage.

• Refinance your student loans to get better rates and payoff terms, especially if your credit score and income have increased since you graduated.
• Get a federal loan consolidation if you just want a simple monthly payment instead of multiple payments.
• Student loan repayment assistance is available as a benefit through some employers. This can help you pay off your loans faster.