Merging Student Loans with a Mortgage: Considerations and Benefits
3 minute read
December 23, 2016


One of the most recent developments in finance has been lenders allowing borrowers to merge their student loans with their mortgage into one new loan. This product allows people to save on interest rates since the new loan counts as a mortgage instead of a personal loan. It also beats refinancing two loans in the hopes of finding a lower rate for both.

However, this product raises several questions: is it good to combine two loans? Does it increase your risk of foreclosure? How will it change your credit? Once you combine your loans, you can’t hit undo and reverse the process. Those who have federal loans need to consider if they’re willing to lose those protections and benefits to save on interest.

Read below to see what the numbers say and which option is right for you.


Many borrowers pay high interest rates on their student loans and smaller ones on their mortgage. By merging your two loans, you’ll be able to take advantage of historically-low mortgage rates and apply them to your student loans.

Interest rates for federal student loans taken before July 2016 range from 3.86 to 6.8%. Average rates for private student loans range between 9 and 12%, more than double what home rates are. Refinancing can save you thousands, depending on your current terms and what the lender offers you.

For example, if you have a $25,000 loan with a 6% interest rate and a 10-year term, you could save $1,487 total if you refinance to a 5% interest rate and a 10-year term. If you had a 9% interest rate, you’d save more than $6,000 over the life of the loan. See how much you’ll save with this calculator.

Another benefit of consolidation is that you’ll only have one loan payment to make each month.


Those who have federal loans lose any government benefits once they roll their student loans into a mortgage. These perks include income-based repayment plans, deferment or forbearance, and public service loan forgiveness.

For example, if you lose your job and can’t afford your bills, the federal government will allow you switch to an income-based repayment plan and your minimum payments will decrease significantly. A mortgage has no such provisions.

CFP Therese. Nicklas said she doesn’t recommend this options for multiple reasons.

“First, you are adding risk to your home by increasing the debt on the home,” she said. “Say you want or need to refinance at a later date for a more favorable rate or terms.  If you increase the debt amount, you reduce the equity.  If home values fall, you risk not having the ability to refinance and potentially risk losing your home.”

Another side effect is that refinancing often extends the loan term, which might result in even more interest being paid. However, you can avoid this by paying more than the minimum.

Which Option Is Right for You

Each path has its merits. Merging both loans might be right if you’re comfortable giving up the protection of federal loans. However, those who are risk-averse should keep their loans separate.

There are other options if you don’t want to consolidate both loans. You can refinance your mortgage and student loans separately. That way, you’ll receive the benefits of smaller rates without the risk of combining both loans. Some student loan providers also decrease your interest rate if you sign up for automatic billing.

A financial advisor or planner might have more insight on your situation and can advise on which choice works best.  

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.

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