Should I pay off student loans

[bellarella]

While it may feel emotionally better to get rid of a loan/debt all together, the numbers don't lie -- it's far better to pay more into your mortgage with the higher interest. Not to mention, in the worst case scenario that someone is unable to work or laid off, unless this is a private loan, it is far far FAR easier and more likely to get a temporary pay adjustment, deferment, etc on a student loan than a mortgage.

Yup. This. People who are advocating paying them off are talking about making an emotional decision, not a financial one. If the loans are stressing you out and you are willing to essentially "pay" to get rid of that stress, go ahead and pay them off. But it doesn't sound like that is the case. The $8,000 is either going to go to pay off your student loans at the low interest rate or reduce your mortgage amount, which will carry a much higher rate. The money can't do both things.

 

[DaniB]

After reading the other responses again, especially the last 2 PP, I am reversing my previous say.

What they are suggesting does make much more sense in your scenario! Especially since you can than reduce the number of years on the mortgage from a much larger down payment.

For us, paying off our Visa first makes more sense. The Visa is a smaller amount than our Line of Credit, but it has a *much* higher interest rate! We need to get rid of that ASAP.

 

[Lisa loves Pooh]

Yup. This. People who are advocating paying them off are talking about making an emotional decision, not a financial one. If the loans are stressing you out and you are willing to essentially "pay" to get rid of that stress, go ahead and pay them off. But it doesn't sound like that is the case. The $8,000 is either going to go to pay off your student loans at the low interest rate or reduce your mortgage amount, which will carry a much higher rate. The money can't do both things.

Not at all.

There is no mortage at this point. They could just as easily negotiate a price that is $8,000 less.

On a 30 year mortgage at 6%, $8,000 amounts to...$48/month

On a 15 year it amounts to $68.

So we are going to drag around a $140 payment to save paying the bank $60-$90.

Also--if they could negotiate seller paid closing and come up with that $8000.

I'm a bit confused on how the numbers show that NOT paying it off is the wiser option and that paying it off is simply emotions.

Perhaps the OP has additional information? But on straight math--the payment would be LESS and easily negated by paying extra to principal if the money went towards paying off the student loan.

 

[mickey&minniealways]

You mortgage will be 5%+ - use the money for that.

I think this might be a coservative estimate. We literaly just refinanced our mortgage for 3.75 perscent. With excelent credit they can probably get close to this or better depending on where they the op is living. Be realistic about your budget though. There are monthy expenses that you may not think of. Real estate agents and banks tend to tell you that you can afford alot more then is realistic in my experience. You do not want to make yourself housepoor. You will have house insuranc, car insurance car payments, property tax, house and lawn expenses. Water bills if you don't have a well, etc.

 

[WDWisTheBest]

I really like the comments on this thread.

 

[Mom2Ben02]

My husband and I had the same questions. We wanted to use our tax return to pay off student loans and the remainder of his car. Our mortgage broker said NOT to pay them off because student loans are installment loans, meaning once you pay them off the account will close and that can lower your credit score. This doesn't apply to revolving accounts though, such as credit cards.
Just something we learned as we are buying a house

Paying off an installment loan does not lower your score. CLOSING a credit card that is paid off does.

 

[branv]

Well it's hard to do the "real" math without knowing original amount of loan, etc, but basing it on some hazy number:

On a $7500 student loan, with 1.5% interest, at $140/payment a month, she is paying approx: $267.79 in total interest over the rest of the term of the loan.

Now, if she bought, say a $200,000 home at 5% interest for 30 years, with a 20% downpayment (i.e. no PMI payments) and closing paid up front, she would do a loan of $160K: or a montly payment of $858.91

But if she added another $8K to that downpayment, for a loan of $152K: $815.97/mos.

The $8K saves you:
$43/mos
$516/yr
$2580/5 yrs
$15,480/life of the loan

And in an uninflated market (as she is in), add to that the $8K you will potentially recoup when you sell the house.

BUT going back to the original question i.e. comparing mortgage to student loan: in one year alone she would save twice as much paying down a mortgage $8K than she would save in interest on paying off her student loan early.

Disclaimer: These are not my numbers, but were generated using bankrate.com calculators. I am far from a math whiz (*cough* liberal arts degree *cough*), so proceed at your own risk

 

[manning]

We have an emergency fund, we are saving for a 20-30% downpayment. We basically have it at this point and should have all money for closing costs saved by the time we actually find a house

We put the majority of our free income into retirement savings. Fully fund Roth IRAs and 403bs. Job loss is not a concern as my husbands salary is funded by a grant that is guaranteed for the next 5 years. I work in health care and am top in seniority in large department.

Its really just a matter of shifting money. I could write the check and pay them off right now, but at the same time, in 2 months I could put 8k more down on a house, which is 8 k less to pay 5% interest on vs 1.5%. we alreay pay double the minimum, and either way, mine will be payed of in 2 years and DH's will be payed off in 3 years.

I guess I'm leaning towards keeping the 8k for a larger downpayment.

My dad used to say"never say never because it never happens.

Seniority doesn't mean anything today and if it does by you today could be gone tomorrow.

There is truth to the saying "we had it all planned, then life happened."

I agree with Dave Ramsey....be debt free!!! Or as my dad would say...with that $25.00 interest you can buy a meal.