A home equity loan is often overlooked as a funding option for your child’s college education.
If you’re worrying about how you’ll pay for your child’s education or a degree of your own, you may want to consider a home equity loan as one of your options. Typically, a college education is funded with savings, grants, scholarships and federal or private student loans. But a home equity loan for tuition may also be an option that fits your situation.
With a home equity loan, you borrow money against the equity you have in your home. Equity is the difference between the market value of your home and what you owe on your mortgage. For example, if the market value of your home is $250,000 and you owe $190,000, you have $60,000 in equity.
Check out these advantages and risks involved with home equity loans.
Advantages of a home equity loan in helping pay for college
Why use a home equity loan when student loans are available? There are limits on how much you can borrow each year through federal student loan programs. A home equity loan can make up the difference if you need additional funds.
Unlike other types of loans, home equity loans often have longer terms. Additionally, they may have lower fixed interest rates than student or other loans. Talk to a U.S. Bank lender to learn more, or start by getting a home equity rate estimate on your home.
A HELOC might be better for your needs
Depending on your situation, a home equity line of credit (HELOC) might be a better option to help pay for college. These lines of credit work much like home equity loans, but with a HELOC, you get approved for a line amount, then you borrow only what you need, when you need it. Usually, you get a special access card or checks that let you draw from available credit whenever you need to. This might be an easier option for making tuition payments each semester. In addition, HELOCs offer flexible monthly payment options during the draw period, which may include interest only payments for qualified borrowers or a percentage of the outstanding balance.
Whether you decide on a home equity loan or a HELOC, you can often access funds within days of signing the paperwork to help pay for college.
Look before you leap
Although home equity loans and lines of credit come with advantages, it’s important to understand the risks. The most important one is that if you default, you could be putting your home at risk.
Both home equity loans and lines of credit are secured by your home. So, before you make a final decision, make sure you have realistic plans for paying back what you borrow.
Continue reading to learn more about home equity loans and lines of credit.