Mortgage refinance - Debt Consolidation

[supercar]

Hi all ! Been some time since my last post. Hope you all are doing well in both health and wealth.

My current situation:
Mortgage loan balance: $90,000 4% 5ARM
Student Loan Balance: $25,000 7% Stafford Direct
Balance on all credit cards: $7,000 (0% APR)

Income: $85,000
Home value: $165,000

Credit Score: 700



Because, I make over $75,000, the interest I pay on my student loan is not deductible :'( and the interest rate anyway is way too high. So, I'm thinking of doing a 20 year Fixed Cash out refinance taking 25K out and paying off the student loan with it.

That would make my Mortgage balance around 120,000 if I roll in the closing costs.
Does anybody see anything wrong with this?

Also please find below the GFE I got for a 20 year Fixed with 700 credit score from a private lender.

Interest Rate: 3.875%
Term: 20 years
Monthly payment $720
Origination Charge: $2,562
Credit for interest rate: -$1,677
Appraisal: $ 499
Credit Report: $ 49
Title and lenders insurance:$1,462
Govt Recording Charges: $ 100

Total estimated settlement charges: $2,958.00

I just wanted to get a nod from you savers out there that this GFE looks ok.. or if anything here is too inflated and ripping me off?
Thanks for your time.

[disneysteve]

I like the idea of refinancing since you have an ARM.
I'm not sure I like the idea of rolling your student loan debt into your mortgage.

Tell us more about your situation. Do you have any savings or emergency fund? What are your monthly expenses? Are you funding a retirement plan? When does the 0% period end on the credit cards and will you have them paid off by then?

[Petunia 100]

Contributing 11k to your employer retirement plan gets your AGI down to 74k and makes your student loan interest tax deductible. Just sayin'.

[supercar]

Originally Posted by Petunia 100

Contributing 11k to your employer retirement plan gets your AGI down to 74k and makes your student loan interest tax deductible. Just sayin'.

Very good idea Petunia... that thought hadn't even occurred to me ! I'll see if I can budget with that amount...

disneysteve : The 0% offer is valid until Mar 2013 I think ... there is no hurry to pay off the cards as such.

But I'm planning to buy a car, and want to pay it all off before that to increase my credit score...

[disneysteve]

Originally Posted by supercar

But I'm planning to buy a car, and want to pay it all off before that to increase my credit score...

How much of the $32,000 in debt (student loans and credit cards) will you be able to pay off before taking out a car loan? How much do you have saved up toward the car purchase and what is your trade in worth? How big of an emergency fund do you maintain?

[supercar]

Originally Posted by disneysteve

How much of the $32,000 in debt (student loans and credit cards) will you be able to pay off before taking out a car loan? How much do you have saved up toward the car purchase and what is your trade in worth? How big of an emergency fund do you maintain?

As soon as I refinance, I was thinking I would pay off 15000 to student loans. I wasn't thinking of paying off the credit cards right now. I currently don't have an emergency fund. I was thinking the balance of the $10,000 would act as it.
Reg $7000 for credit cards, I was thinking I would pay $500 each month towards them. That should take care of them.

I've just started thinking of getting a car now. I don't think I'll get one until next thanksgiving sale or may be President's sale of 2013. It is not a necessity now.

Also, my initial question in OP was if the closing costs of the loan looked ok or if it was too costly.

[bjl584]

How long do you plan to stay in your house? If you plan to move anytime in the next 5 to 10 years, I probably wouldn't roll my SL's into a HELOC because it will eat away at any equity that you may have in the property.

[riverwed070707]

What type of repayment plan are you on with your loans? Purely looking at the numbers, if you are on a 10 year plan with your SLs and refi to a 20 year mortgage you're going to pay more in interest over the life of the loan. It will cost you almost $11k in interest to pay them over 20 years (not inclusive of the closing costs you'll be rolling in) and under $10k to pay them off in 10 years at the current rate. Obviously not a huge difference, but if your primary reason for doing it is because you think the rate is too high, then you're only hurting yourself by extending the term.

Now if you could do a 15 year mortgage (and on your income you should be able to) you will be saving money -- roughly $8k in interest rather than $10 -- and you'll probably qualify for a lower rate to save even more.

All that said, I'd probably just not roll them in and pay them off at an accelerated rate. If you pay things ahead it makes a much bigger difference than a few points in interest.

[supercar]

riverwed070707 you are exactly correct. I did do those estimations and amortization schedules on my white board.


Thanks a lot everybody for your replies. I am not going to refinance as of now. My bank called me the other day to re adjust my rate on my 5/5 ARM to 2.75% on my mortgage. I'm going to accept that. Build an emergency fund first and then pay off a part of the student loan every month. I think this way I pay the lowest interest amount with least risk.