home equity

Too soon to try for home equity loan?

Don TaylorDear Dr. Don,
I was wondering if it is possible to take out a second mortgage on my house to pay for my student loans. I've owned my house for about one year now, but I don't have much equity in the home. My student loan interest rate is just shy of 7 percent, but mortgage rates are generally much lower. Is this even a possibility, or is it just a dream?

Thanks,
-- Tyler Tuition

Dear Tyler,
Unfortunately for you, it's a dream. When you take out a second mortgage, you're borrowing against the equity you have in your home, if you have some. At this stage, you probably don't have much equity in your house, so there's little, if anything, to borrow against.

Since the 2007-2008 financial crisis, lenders have been less willing to loan up to the full value of the house. Even if you had some equity in the home, you can't borrow against the total value.

While a 7 percent interest rate might sound high, the effective rate is lower if you can use the student loan interest deduction to lower your income tax bill.

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