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Author Topic: Anyone doing a cash-out refinance to pay for LS?  (Read 1462 times)

TRad

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Anyone doing a cash-out refinance to pay for LS?
« on: April 29, 2008, 09:55:28 AM »
This is what I'm doing in lieu of racking up student loans to pay for living expenses.  I plan on being in my house for at least 7 more years (my youngest graduates HS in 2015) so I'm hoping that the equity I suck up for LS now will be largely regained by then.

I got approved yesterday for a 100% loan, at 6% fixed for 30 years!  Seems too good to be true, but I checked him out with my state regulatory commission and he's legit.

Anyone else doing this?

ksully

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Re: Anyone doing a cash-out refinance to pay for LS?
« Reply #1 on: April 29, 2008, 10:06:53 AM »
It may be a good alternative to a private loan, but you would still be better off with a Stafford lona that will be partially subsidized while you are in law school an will probably give you a better rate.

Depending on how much the loan is for and how the market rebounds, you may be able to see some equity build up, but that is a best case senario. Treat the loan as if you wont see any significant equity improvment in the next seven years. The downside is that if you decide to sell, you have to pay back the loan and can't use the equity for a downpayment. If you can live with it then you should be alright.

Hubel123

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Re: Anyone doing a cash-out refinance to pay for LS?
« Reply #2 on: April 29, 2008, 10:28:31 AM »
I personally wouldn't tie up my house with law school loans.  If the price declines on your house and you then need to move you're on hook for the difference. With Staffords, Grad Plus, etc. you're free to move and do what you need to without having to worry about coming up with cash at closing.

The scenario you've outlined is exactly why people are being foreclosed on in record numbers. They lose a job or the market goes down and then they are upside down on their loans and can't sell. I've heard about people getting to closing and then they find out about a second loan or a HElOC and they can't close without cash.

TRad

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Re: Anyone doing a cash-out refinance to pay for LS?
« Reply #3 on: April 29, 2008, 11:27:10 AM »
I'll be taking out federal loans for tuition.

Being a non-trad, my COA is much higher than most so I'd need to get private alternative (direct to student type) loans to cover my true COA in addition to the federal loans (both subsidized and un).  These come with a high interest rate and would leave me with a huge loan balance upon graduation.

I'm aware of the issue with 100% financing and will likely only take 90% LTV, depending on the appraisal and how much that will net me in cash out.

I've run the numbers on racking up the student loan debt vs. leveraging the equity and using the equity is the better business decision.  If I were planning to move, it would be different, but the legal job market in Richmond is projected to grow 14% over the next 5 years and I love it here.  Plus, our housing market has remained mostly stable rather than the boom and bust cycle that other parts of the country have had.

I'm thinking that I'll divide the equity into three accounts:  liquid for 1L year; 1 year CD for 2L year; 2 year CD for 3L year.  I can cash out the CD's just before each corresponding year.  Any input on how else to invest for a good gain but also a safe harbor, is welcome.  Short-term bonds?

hbb

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Re: Anyone doing a cash-out refinance to pay for LS?
« Reply #4 on: May 02, 2008, 01:15:02 PM »
Laddering CDs as you've outlined sounds like a reasonable plan. I couldn't really comment on the bond market right now, I'd be in way over my head  ;) 

I actually have followed a very similar route to Matthies, downsizing from a house that had appreciated tremendously over the previous years into a townhouse near the school I planned to attend - although I may be attending law school elsewhere, so this property is likely to become a rental.

Setting aside the risks of a high LTV in a declining real estate market, a HELOC will have a significant tax advantage over student loans, as the interest deduction is not capped at $2500.00 like student loan interest.

My tentative plan is to take on federal student loans now, thus taking maximum advantage of any subsidized loans while in school, as well as deferring payments until graduation, and still retain eligibility for the federal IBR/LRAP programs should my employment plans change and I find myself in a public interest of government position. Once I've graduated, I can then tap into the HELOC I've already put in place at a favorable interest rate, and take advantage of the tax benefits of mortgage interest to offset my (hopefully high) income once I'm working in the legal field. This plan seems to offer maximum flexibility, allowing me to take advantage of the benefits of the federal loan program while in school yet providing an opportunity to utilize the equity in my home to gain a more favorable interest rate and greater tax advantage after graduation.