Hi - My husband and I are in our early 30s. He is a month away from completing grad school and will leave with a substantial amount of student loan debt ($70K at 7%). We own our house in Austin where the market in our quiet neighborhood has recently exploded. We are planning to move soon as I have a pending job offer in a city with a very low cost of living. If we sell our Austin house now we stand to make a profit of about $100K, which we could use to pay off the student loans now. However, if we held on to the property for a few more years and rented it out, we stand to make a much larger profit. Any advice? We have no other debts (except one small car loan with a low interest rate) and my job offer is in the Federal government, which provides job security.
Congrats to both of you on your awesome success!
You are in a great situation and I can argue, in my own head, for paying off the debt by selling the house or keeping the house as a rental.
Since you do not have any other debt can you just start making loan payments with extra principle? This may be the lowest cost of eliminating the debt.
The 7% interest is not deductible on your taxes. The non-deductible interest and that fact that it’s 7% are the only negatives in this equation.
If you sell your house you are taking money that you can roll into the purchase of another house in the new location keeping your mortgage lower. Basically you would be adding the $70k to the new mortgage.
You could take out a home equity line of credit on the current home and possible get a lower rate which is tax deductible. If this math works you could make the same payment amount that you would have made at 7% and reduce the debt faster with a tax deduction.
If you keep the house as a rental I would encourage you to find someone you know who has a rental property and discuss with them the “pleasures” of being a landlord. There is much more to that task than depositing rent check.
Again, I agree and disagree with both of these options. It really comes down to personal preference and what you can manage. I really don’t like the idea of paying off one debt with a consolidation strategy.
The other option you may have is refinancing the 7% debt at a lower rate. If your credit is good this may be an option.
I would recommend you find a Certified Financial Planner in your area to work with. Let me know if you have further questions.
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