Mortgage and student loans...

[bjl584]

I am currently in the process of consolidating my student loans. The Department of Education will consolidate all of my govt. loans, then I will pay off the remaining private loans that I have outright.

[tripods68]

How could you do that? She doesn't currently own a home, so this would be her first time applying for a mortgage, and you can just get an additional $120K more than what the house is worth? I can see if you already own a house and have the equity that you could cash it out, but I don't understand how that would work if you are just buying a house (and seems like a bad idea to me for institutions to lend more than the house is worth). I'm not arguing with anyone, I just don't understand how this would be possible (I don't think it is here in Canada).

I agree. That wouldn't make sense. I think and this is pure speculation. Maybe she was thinking of asking her dad taking "cash out" as 2nd since she would be the future owner of the house. She would then later REFI to entire amount into one payment. That's still doesn't make sense either if they plan to buy their own home in 2010. At that point she will own to homes paying two mortgages comingling her hubby SL. Not a good idea.

[Seeker]

This might be a good idea. Your student loans have tax deductable interest, but for a finite amount of time. I believe this deduction exists on the 1040A (you don't need to itemize to claim it) and maybe even on the 1040 EZ.

Your mortgage interest is deductable without restriction to best of my knowledge.

Do a tax analysis and see which one nets you the best benefit cash flow and tax wise.

Not sure what the part bolded above means. When you pay the interest on the student loans, the interest portion paid is deductible on year that interest was paid. What time limitation is there here? We got receipts for the interest paid, and we deducted it from the years that we paid it (government did not contest this); the actual education took place years before and was in default. But regardless we still got those deductions?

I'm not sure you can use EZ form with interest paid on student loans. May have to use 1040A or 1040.

Yes, you are correct about itemization. The interest paid is separately deductable.

If you don't itemize your interest payments, property taxes, licenses, etc. because your Standard deduction is higher than than itemizations would be, then interest paid is still deductable from the federal perspective. Interest on education loans are not filed along with the deductions (Schedule A I think?); it goes directly on the same schedule as the interest earned / paid schedule as I recall.

But I'd be curious to know what you learned about "time limits" in deductions.

[noppenbd]

Maybe he was referring to the income phaseouts. As your income increases the deductable student loan interest decreases.