Pay-off school loans or let them simmer? (FICO Score and Mortgage related)

[Anonymous]

I've got about $15,000 worth of student loans. Payments are easy at about $200 month for the next 8 years or so. Interest rate is just a hair over 5% consolidated.
Should I pay them off in full or not?

FICO related:
I've got a good FICO score at 786. I'm wondering how paying off the student loan will effect my score. I have no debt other than this loan. Credit cards are always payed off in full.
I've read conflicting opinions about paying this loan off. Some saying it would be a positive to pay it off because my debt ratio would go down, and others saying it would be a negative because having a loan with good payment history is better than no loan at all.

Mortgage related:
I'll probably be in the market for a house in 2-4 years. I'm wondering if I should not pay off the student loans and instead use that money in my house down payment since my home loan interest rate will surely be higher than the 5% on the student loan.


If I didn't pay the loan off, I would likely keep the money in a savings account (safe and accessible) making 3%-4% in interest.

Any thoughts?

[Anonymous]

I would let them simmer. If you have no other accounts, then paying the student loan payment is at least something to keep you going. Sure, there's interest, but you'll be almost making up for it with the savings account. Plus, $15K is a good chunk of cash that could go toward that house you're looking to buy.

[Anonymous]

I agree. What I would do is make a plan for paying off the student loans at an accelerated pace that I'm comfortable with (i.e. workable, somewhat aggressive monthly payment). Then subtract the minimum monthly payment from that accelerated payment and have that amount direct deposited into the savings account. I think if you DD it right off the top you'll be sure to save it and have less opportunity to bow to temptation.

Ryan

[Anonymous]

You could also pay down the principle so that you will pay them off soon after you get a mortgage, thus lowering your debt burden right after it spikes and always maintaining a installment loan on your report to boost your score.

[Anonymous]

I would recommend that you pay off this loan as soon as possible. Especially, if you will be seeking a mortgage in the near future.

Besides, it is silly to pay someone interest because of a credit score. You have a great score.

[Anonymous]

IMO- increase your payment amount to hit a little more off the balance-

This WILL be the last loan you will ever have at 5%-

I have not paid off my SL's because I was still able to deduct interest (until this year)  I have been paying 4x min for the last year after consolidating-

I guess it all depends on you budget and plans - you may even want to consult an advisor- 

This reminds me- I need to pay mine off-

[haulingthescoreup]

Seems to me that having as much cash as possible available for a down payment is your best bet. Having a bunch of cash will maximize your flexibility at closing time. If you have well over the $15,000 pay-off figure available at mortgage time, you can pay it then and there if they request.

Once you get the mortgage, you can kill it off then, if you still have the funds, which will free up that $200/month to help on mortgage payments. Although even then, there's a lot to be said for pre-paying on the mortgage instead, depending on the difference in APR's.

[Anonymous]

You may want to try to estimate what you DTI ratio will be around the time you buy a house. If income is not issue, it won't matter, but if you are cutting it close on the the minimum income needed to qualify for your home needs than you might want to pay off the student loan, so it's not factored into your DTI.