Pros and Cons of Using a Home Equity Loan to Fund College

Pros and Cons of Using a Home Equity Loan to Fund College
  • Opening Intro -

    If they can’t save a vast amount of money until their children finish high school, parents have to find different means to pay for education.

    Due to the improvements in overall economics in the U.S., home equity loans should be something parents do consider, because they bring a good number of advantages.

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Paying for college is a thought that comes up in every parent’s mind, even before their children are born. If they can’t save a vast amount of money until their children finish high school, parents have to find different means to pay for education.

Luckily, there are a vast number of options available, but some of these are, of course, better than others. The average sum needed to get a child through college is around $23,000 per year for a public school and approximately $46,000 for private schools, according to recent studies.

Apart from the usual means of financing college, like federal of private loans, there is a category which if often overlooked, and which we will discuss today: home equity loans.

Around 1 percent of parents burrowing for college actually used a home equity loan in 2015. The cons of this approach to pay for children’s college are, of course, understandable, because they are literally putting their homes on the line.

But due to the improvements in overall economics in the U.S., home equity loans should be something parents do consider, because they bring a good number of advantages, too.

Here are the main ones you should know:

Pros

1) Cheap and tax deductible

Home equity loans carry a lower interest rate than most other loans, and this loan is also tax deductible. It is also fairly easy to access and the rates are usually around 5 or 6 per cent – a lot better than a private loan.

2) Quick and easy

Due to the fact that home equity loans are often the last solutions parents think about, they have been designed to be easy to access and quick to grant you access to the liquidities you require.

3) Fewer restrictions

These loans do not have the restrictions federal loans usually have, thus being able to finance a larger part of a child’s needs.

Depending on the LTV of your home, you home could become a bank. It can become one of the best ways to help you children in college and beyond.

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Not everything is great about these loans, so we must list the disadvantages too:

Cons

1) Risk

This should be clear for everyone – home equity loans are loans in which your house is on the line. Fail to make some payments and you’re close to foreclosure.

2) Little flexibility in hard times

Typically, these loans do not offer any flexibility during periods of financial hardship.

3) Equity limit

If you have not been paying your mortgage for a long time, you might not have a lot of equity available to use for a loan. Lenders usually give you around 90% of your home’s value for your mortgage, so carefully see how much you still have available.

If you are considering a home equity loan, carefully consider the pros and cons and decide if it is the best option for you. Weigh it against federal and private loans and consider offers from more than one lending institution.

Share this post with all your friends in order to stir up the debate around home equity loans, so that you can all find the best solutions together! The more people involved the more offers you can receive and compare – what’s not to like about this approach?

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Categories: Home Financing

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