Ask Terry Questions Parent Plus Loan — Refi Home to Pay it off?

Parent Plus Loan — Refi Home to Pay it off?

By Terry Savage on December 22, 2019 | College Savings / Student Loans

I have parent plus loans in the amount of $53,000.00 at 6 1/2 percent.
We owe $44,000.00 on our home. Is it a good idea to use the equity in our home, refinance and get rid of the 6 1/2 percent interest rate.

Terry Says

In a word, YES. BUT, be aware that the portion of the interest you pay on your mortgage that is attributable to paying down the PLUS loans is not deductible. I’m not quite sure how that will play out in practice, since the bank will likely just send you one statement of total interest paid. So perhaps you will deduct the portion of the interest attributed to your original mortgage debt. OR, there is the slight possibility that by combining those loans and using some to pay down student loans, it might make the entire loan interest non-deductible. This is such a new rule — the Tax Cut of 2017 — that I don’t know if it has been tested yet and to how and which interest becomes deductible. Check with a CPA, as there may have already been a ruling.

However, from a strictly numbers standpoint, you’ll get a mortgage at less than 4% interest –and save a fortune on the student loan interest. Another possibility is a home equity loan, but that exposes you to future higher interest rates down the road. See what the “cap” would be on a home equity loan, and then try to pay it down within 5 years.

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