# Use HELOC to pay off student loans?



## natalie_d (Nov 25, 2009)

Hi all,

Just wondering if it would be a good idea to use my parents' HELOC to pay for my student loans, then I'll pay my parents' HELOC.

Details:

Student loan interest rate: prime + 2.5%, so 5.5% right now
Scotiabank HELOC rate: 4% (not sure if it's fixed or variable)

Interest on student loan gives tax credit. In Ontario, I get 15% for federal and 5.05% for Ontario. So the after tax interest rate is actually 5.5% * (1 - 15% - 5.05%) = 4.3725%

I did a loan amortization table using both interest rates (the HELOC and the after tax student loan), and it seems that I can reduce my total interest expense by about $150 - $300 by using the HELOC (I played around with my monthly payment to get that range)

My parents are ok with it and there is no transaction cost (as far as I know) with the HELOC.

Am I missing anything in my calculation that would make switching to HELOC a bad move?

Thanks!


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## Xoron (Jun 22, 2010)

natalie_d said:


> Scotiabank HELOC rate: 4% (not sure if it's fixed or variable)


Until Scotia Bank follows the other big banks and raises the interest rates. 

http://www.moneyville.ca/article/1125691--line-of-credit-interest-rates-rising-for-some

It's all about risk, what is the risk that the HELOC will be increased where it won't be cheaper than the student loan? The HELOC is probably Bank Prime + 1%, other big banks have made changes to make it Bank Prime + 2-4%, Scotia could be next.


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## balexis (Apr 4, 2009)

If the student loan is variable as well, it is then also subject to the same interest-rate increase as the HELOC pointed by Xoron.

Is it really worth the hassle in order to save 150-300$ total? I wouldn't do it.


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## the-royal-mail (Dec 11, 2009)

I had to give this some thought as well, but I'm giving this one a thumbs down.

I see no reason to get someone else involved in your debt repayment program. This could be affecting them in case at some point in the future they need the HELOC.

As with everything, try to operate with a clean slate and keep your finances separate wherever possible. Only in cases of dire emergency should you start to involve others. This isn't an emergency and so for that reason I'm out.


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## Xoron (Jun 22, 2010)

balexis said:


> If the student loan is variable as well, it is then also subject to the same interest-rate increase as the HELOC pointed by Xoron.
> 
> Is it really worth the hassle in order to save 150-300$ total? I wouldn't do it.


But I'm not talking about prime moving. I'm talking about your HELOC going from Prime + 1 to Prime + 2, or Prime + 3 or higher. As happened recently with some TD and CIBC customers.


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## Echo (Apr 1, 2011)

@Xoron - those interest rate hikes were on unsecured lines of credit, not HELOC's.

It doesn't make sense to bring your parents HELOC into this, when all you would save is a few bucks a month.


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## Xoron (Jun 22, 2010)

Echo said:


> @Xoron - those interest rate hikes were on unsecured lines of credit, not HELOC's.


Sure, for now  Don't be surprised if those rates also go up


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## Chris L (Nov 16, 2011)

Don't do it. Handle your own debt the mature way, by yourself. It will give you more confidence moving forward. Take full control right now and move forward on your own merits.


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## marina628 (Dec 14, 2010)

I agree just do it yourself and not involve your parents.


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## realist (Apr 8, 2011)

I have been where you are and its a tough call. 

- Is the student loan with OSAP or through a bank? (I think the OSAP setup has probably changed since I was doing it)
- Can you apply for an "interest holiday" or loan forgiveness at all?
- Depends on your relationship with your parents partly. I would not have wanted mine to be involved in my loans on paper. 
- If you can't pay it back, can your parent's make the HELOC payments? It's their credit at risk, not yours if you use the 
- Do your parents have enough money available to unofficially lend you $1000 (for example) that you will pay back at 3% ? I was paying like 9% interest at one point so getting a small loan from my father saved me about $35/mth at one point, without him having to borrow from the bank.


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## zoya (Mar 20, 2011)

Is the interest that you pay on your student loan tax deductible? If it is, then I woudn't move the loan to Heloc since you wouldn't be able to write it off.


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## Guigz (Oct 28, 2010)

Generally, the interest on a student loan gives rise to a tax credit, not a tax deduction. The potential upside is therefore somewhat limited.


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## zoya (Mar 20, 2011)

But it's still better than nothing.


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