The online personal finance company Social Finance, Inc., which is often referred to as SoFi, just introduced a unique product called the Student Loan Payoff Refi. This product lets homeowners refinance their mortgage and then use the equity to pay down their student loan debt.
In addition to student loan offering student loan refinancing, SoFi offers the Student Loan Payoff Refi, letting borrowers refinance their home mortgage and then use up to 80 percent of the equity to pay down outstanding student loan debt. If the total amount owed on the student loan debt is not covered by the borrower’s home equity, SoFi will pay the student loan debt down partially and then borrowers can keep making payments on the remaining balance to their student loan provider.
SoFi has stated that an estimated 8.5 million households could either pay down or pay off their student loan debt entirely with the Student Loan Payoff Refi. This includes parents who co-signed for loans for their children. The average debtor with outstanding student loan debt owes $28,000.
Homeowners have always had the option to refinance their mortgage and then use the home equity with a cash-out refinance. By using the Student Loan Payoff Refi, borrowers end up paying less because it is less expensive than a cash-out refinance and gives borrowers a lower rate on their student loans.
The loans are backed by Fannie Mae and starting out, SoFi will use Fannie Mae’s eligibility requirements. To qualify borrowers need a credit score of 620 or higher, a debt-to-income ratio that’s 45 percent or less, and a loan-to-value ratio that is 80 percent or less.
The Student Loan Payoff ReFi stands out because it gives borrowers the option to get lower rates on outstanding student loans. Mortgage rates are currently at all all-time low of less than 4 percent while most people have student loan rates that are 6 percent or higher.
SoFi entered the mortgage business in 2014 and Fannie Mae approved SoFi as a seller and servicer back in May 2016. Michael Tannenbaum is the senior vice president of mortgage at SoFi and in a recent interview he explained that there is a huge opportunity for borrowers to take out additional mortgage debt on their home thanks to the current low interest rates. Because of this it may be better for borrowers to have more mortgage debt and pay off their student loans.
The Student Loan Payoff Refi is available in the 27 states where SoFi has a mortgage license and this option is exclusive to SoFi for the time being. If this product proves to be successful, Fannie Mae plans to make it available to everyone next year.