What is the top advantage of being a homeowner? Many would answer that the equity you gain while steadily paying down the mortgage is high up on the list of benefits. Homeowners can tap into equity to help pay down high-interest credit card debt, medical bills, home renovations, and perhaps one of the biggest expenses for families with children: college tuition.
In an ideal world, you would have money set aside for children’s college expenses, but most families have the majority of their net worth tied up in their homes, 401k, and/or other retirement plans. A cash-out refinance can free up monthly funds with a lower interest rate and allow homeowners to tap into the equity of their home.
Using the equity in your home to pay for children’s college tuition can make great financial sense. Mortgage interest is deductible, in most cases, and rates are lower than most student loans. The average debt load for the class of 2012 was $29,400, with a yearly average increase of 6 percent, according to a report released by the Institute for College Access & Success' Project on Student Debt.
According to Freddie Mac, homeowners have cashed out approximately $12.8 billion in equity so far in 2014. Mortgage rates are still at historic lows, but there are a few things to think about before cashing out your equity:
- Closing costs
- Age of your current mortgage
- How long you plan to stay in your current home
- Loan term
Cashing out your equity can be a great way to help your children get ahead of costly college loans, but you need to consider how financing those costs into your mortgage will affect your monthly payment, pay-off, retirement, etc. Talk to a Mortgage Banker at Compass Mortgage about if a cash-out refinance fits with your financial plans and goals.
Looking for more information about refinancing your current home loan? Our Refinancing Guide is a great resource for homeowners in the market to refinance.
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