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Your Bank > Education and Advice > CNB University

Should I Pay off My Student Loans Early with a Home Equity Loan?

D Rought 2014
Deborah Rought is Vice President, Manager - Canandaigua Community Office and can be reached at DRought@CNBank.com or (585) 394-4260 x40120.
Generally, the earlier you can pay off your student loans, the better off you'll be. You'll save interest and improve your debt-to-income ratio, a factor lenders consider when deciding whether to offer you credit, and your good payment record will be positively reflected in your credit history and credit score.

If you're a homeowner, you may want to consider paying off your student loans with the proceeds of a home equity loan (subject to credit approval). There are advantages and disadvantages to this alternative, and you'll need to analyze the financial consequences before you decide.

One advantage is that home equity loans often have longer terms than student loans, which may make your monthly loan payments lower. This can improve your debt-to-income ratio. In addition, if you itemize deductions on your federal income tax return, you may be able to deduct all the interest you pay on your home equity loan.

On the other hand, interest rates for home equity loans are often higher than those for student loans. And whether you itemize or not, you may be able to deduct from your taxable income a portion of the interest you pay annually on your student loans.

Finally, keep in mind that student loans are unsecured debts, whereas your residence secures a home equity loan. If you can't meet your student loan payments, you may go into default and undermine your good credit record, but if you default on a home equity loan, you could lose your home to foreclosure.
 
If you have any questions, contact Deborah today at 585-394-4260 ext. 40120.

©2016 Broadridge Investor Communication Solutions, Inc. All rights reserved. This material provided by Deborah Rought.