Advice on taking a second mortgage to pay off student loan - The Bills.com Blog

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Advice on taking a second mortgage to pay off student loan

Question: I have a consolidated student loan I would like to pay off because it accrues interest daily and I was wondering if it would be beneficial to take out a second mortgage to pay it off or keep letting the interest accrue daily? I thought there might also be some tax advantages to having a second mortgage versus a student loan?

Answer: According to the IRS - "Any personal interestyou pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $65,000 ($135,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up

to $2,500 in 2006." (Source: (www.irs.gov )

When compared to student loans, there is no cap on the amount of interest that you can claim as deductible when it comes to mortgages. Therefore, it really depends on the amount of interest you are paying on your current student loan and if the current income bracket you are in, qualifies you to get this deduction. There is no point in switching it to a mortgage unless you are saving a substantial amount on the interest rate between the two. You will

have to compare the tax benefits with the cost of funds that you are borrowing. Another factor to consider is the closing costs involved in getting a second mortgage. Keep in mind that you will be signing up your home as collateral when you go for the second mortgage, and if for any reason you are unable to keep up with the payments, you will be putting your home in jeopardy. So, make sure you are not over extending yourself.

I hope the information provided helps you Find. Learn. Save.

Best,
Bill
www.bills.com

Also, make sure to get a free financial health check-up with Bills IQ!

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Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!

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