Dear Debt Adviser,
I am getting married very soon. My fiancee has about $60,000 in debt (mostly college loans). My only debt is my home, and I have about $150,000 in equity. I think I can get a home equity line of credit at a much lower interest rate than her loans, and I can use that credit to pay off those loans. She will then pay me back at the lower interest rate. Do you recommend this course of action?
I can tell you are madly in love. No sane person would do what you propose otherwise! If you go forward with your idea, you will be a creditor to your new wife. Believe me, as a person who is married, this is not a position you want to be in. Also, let me remind you that about half of all marriages end in divorce. I'm not saying yours will, but the added pressure of owing you money won't help.
Before you make any decision to pay off her debt, I believe you and your fiancee should have a serious discussion about your personal and financial goals. Do you plan to stay in your home for at least five years? Are you planning to have children and, if so, when? Will you both continue to work afterward? Will you combine incomes? Who will pay the bills? Answers to these questions should help you decide if it makes sense to pay her debt with your home equity.
For example, if you are planning to move in the next couple of years, any HELOC you acquire would become due at the time of the sale. You would have less equity in your home and less money available to put down to purchase your next home.
Additionally, you currently have a longer period of time to repay student loan debt than you would if you converted it to a HELOC. Should you plan to have a child soon after you are married, you might want and/or need to have all the extra cash flow that comes with paying off the student loan debt in a longer time frame.
An additional point to consider is that a HELOC is secured by your home. Should something happen that prevents you from affording both your first mortgage and the HELOC payments, your home could be put in danger. No one plans to lose a job or become severely ill and unable to work, but these things happen all the time.
You need to plan for the "what ifs" in life. Tying up your equity prematurely may turn out to be an unnecessary risk at your stage of life. Adequate life insurance, disability insurance, an emergency savings cushion of six to 12 months' worth of living expenses will all go a long way to helping prevent financial trouble down the road.
When your fiancee took out her loans, I expect that her intention was to pay them off over time using her own income. My advice is for her to stick to her original plan at least for the foreseeable future. If you still want to go ahead, I suggest you and your intended wife may be better off just flipping a coin. Heads, you pay for her loans outright using a HELOC, and she owes you nothing; tails, she pays her own loans with the money she makes. The loan thing is a bad idea. You will become her husband. Becoming her banker, too, is incompatible.