Can I pay off a ‘Parent PLUS Loan’ with a home equity loan? My lender says ‘no’

Q: I applied with my credit union for a home equity loan with a fixed rate to pay off my federal Parent Plus Loans. I was approved but advised that, due to regulations, I could only pay off such a loan using a home equity line of credit with a variable rate. I don't want to use a variable-rate loan to pay off the federal loan. Is there such a regulation? Does the federal government actually stipulate what types of loaned monies I can use to pay off their loan? Is my credit union steamrolling me? Help!

A: There is no federal regulation we are aware of that proscribes a choice of one loan product over another. It may be that your lender has a policy that they only offer fixed-rate home equity loans for things like home improvement rather than debt management.

Regulations are changing at the moment for closed-end mortgage loans. It may be that your credit union -- like many lenders -- isn't actually interested in offering fixed-rate products at the moment, and so is steering you toward the product they are making available for all purposes; HELOCs aren't subject to the same rules and are less costly and simpler to originate.

You'll need to check, but your lender may offer a "loan within a line" option, too. In these situations, you initiate a home equity line of credit, take a draw of a given size, then have the option of "breaking off" this portion into a fixed-rate, fixed-term payment plan. For some lenders, this is the only way they offer fixed-rate access to your home equity.

Of course, you are also free to shop around to see if other lenders in your market can more directly meet your needs, too.