For FA, Is it better to refinance credit cards into mortgage?

Paying for College
1

<p>In general, when a college is calculating EFC (and therefore need), does the college FA office look at *actual * monthly debt or does it apply an assumed amount of debt from a formula based on income, location, number of kids, etc?</p>

<p>Examples of ACTUAL monthly debts include:</p>

<p>mortgage
credit cards
car loans</p>

<p>I am asking this because I wanted to determine if a college only 'sees' a mortgage and not consumer debt when assessing EFC. I am refinancing for a roof and am wondering if it makes sense to shift the consumer debt into the mortgage from a college FA point of view.</p>

2

<p>For FAFSA only schools and federal funding, the FA Office does not look at actual debt at all. Therefore, shifting credit card debt into a mortgage will have no affect on your EFC.</p>

<p>I am not sure how Profile schools view actual debt, though.</p>

3

<p>Profile looks at your assets, including home equity. Thus, using a home equity loan to pay down credit card debt and other debt will reduce the amount of assets considered. It will also replace non-tax deductible interest with tax-deductible interests. The interest rate will likely be lower. </p>

<p>However, since only 6% of assets are deemed available as part of the EFC and a certain portion is excluded (the amount is based on the age of the oldest parent), this may not be significant for you.</p>

4

<p>I think this is unlikely to make a difference for FA, but it could still be a good move as described by momfromme since the home equity debt is likely to be at a lower interest rate and tax deductible.</p>

<p>For example, let's say you have a home that is worth $500,000, and you have a $150,000 mortgage.</p>

<p>That means you have $350,000 in home equity.</p>

<p>Let's say you have $30,000 in consumer debt, and the need to reroof your home for $20,000.</p>

<p>If you repackage that debt and reroofing into a home equity loan, you will have:</p>

<p>$150,000 mortgage
$50,000 home equity loan</p>

<p>Since the market value of your home is still $500,000, this means you have home equity of $300,000.</p>

<p>So this move has reduced your home equity to $300,000, a reduction of $50,000.</p>

<p>This is unlikely to make a significant difference in your FA since FAFSA allows a certain amount of home equity to be a protected asset that is unavailable to finance college costs. Also, although I don't have a home equity loan, and I can't say this for certain, I believe FAFSA asks you why you took out the home equity loan. If it is for reroofing or other home repairs and maintenance, that will probably o.k. But if you took out a home equity loan to pay for a $60,000 car, they will probably not deduct that from the amount of home equity you are considered to have. Keep in mind that only a certain amount of home equity is protected. If you have $1 million in home equity, some of that will be considered available to finance college expenses. And taking out a home equity loan of $100,000 to pay for two $50,000 cars won't reduce the amount of home equity you are considered to have.</p>

5

<p>most of our consumer debt is zero pct or at rates lower than a home mortgage; so if it would not affect FA, might as well keep that part of the debt where it is.</p>

6

<p>
[quote]
This is unlikely to make a significant difference in your FA since FAFSA allows a certain amount of home equity to be a protected asset that is unavailable to finance college costs. Also, although I don't have a home equity loan, and I can't say this for certain, I believe FAFSA asks you why you took out the home equity loan.

[/quote]
</p>

<p>FAFSA does not include any of your home equity for your primary home in the EFC calculation. They do not ask you anything about why you took a home equity loan because the value of the home is not asked for. This may be different for profile as I believe profile schools may consider part of your home equity available for college.</p>

<p>The only debt that FAFSA takes into account is debt against an asset - for instance if you own another property (not your primary home) then the mortgage against that would reduce the value of the asset for FAFSA. If you have an investment account and there is a debt directly against it (like a margin account) the investment value would be reduced for FAFSA.</p>

<p>finaid.org has some info
<a href="http://www.finaid.org/educators/pj/consumerdebt.phtml%5B/url%5D"&gt;http://www.finaid.org/educators/pj/consumerdebt.phtml&lt;/a&gt;&lt;/p>

7

<p>so in determining need - and EFC- neither fafsa nor profile take into consideration any debt, mortgage or otherwise. They probably factor in an assumed debt based on some formula.</p>

<p>Someone told me they went to FA seminar and they were told to make sure you pay for any big items BEFORE college for better FA. Maybe what was meant was not have any big piles of cash hanging around since assets increase EFC; so, if you were going to buy that car (with said pile of cash), buy it now. </p>

<p>I assumed it was to add debt since, I thought, debt is taken into consideration. Wrong assumption.</p>

<p>swim-- other mom says....
"Profile looks at your assets, including home equity."</p>

<p>Dadx4, thanks for that analysis. Your roofing number was right on target.</p>

8

<p>No, PROFILE does take mortgage debt into account. It asks for your assets and home equity is part of that. See Dadx4, above, where he explains how refinancing would affect your equity and therefore your assets, which are part of the Profile formula.</p>

9

<p>momfromme, thanks for the clarification. When I attempted to recap in post 7, I really meant debt, or obligations, that impairs income. I am sure you would agree that a mortgage that reduces one's income does nothing to reduce FA.</p>

<p>How does Profile get the value of home equity? Self reported? or Taken from the mortgage company's sheet?</p>

10

<p>How does Profile get the value of home equity? Self reported? or Taken from the mortgage company's sheet?</p>

<p>Self reported. Based on market value, not assessed value.</p>

<p>I'm not sure if or how they double check, but with sites like zillow.com, it's not hard to see if your self-reported estimate is in the ballpark.</p>

11

<p>Does Profile ask for the actual mortgage balance?</p>

<p>If so, do they then derive equity from the mortgage balance less the 'market value', the latter being self reported? The equity so derived is then used as an asset in the FA calc of EFC?</p>

12

<p>I can't quite remember how this is done, but perhaps someone else here does. As I recall (and my memory may be flawed), you asked such things as the original purchase price, the year purchased, the current value and the amount owed.</p>

13

<p>Someone here has the link. It has been put up many times. Basically it is as momfromme stated. A year of purchase is plugged in with purchase price and current value is spit out. It is far from perfect. We all know that one could have a poorly maintained home which might not be as valuable as stated, or one which was completely redone with a new kitchen, new bathrooms, etc. Also, with the sudden and fluctuating housing market drop in some areas, I would be skeptical about its accuracy. Frankly, without a home inspection, IMO, it can be inaccurate. Still, it is what it is.</p>

14

<p>Many people were talked into a 2nd mortgage because of lower debt and payments, however, the loan office probably did not included the closing costs and miscel fees that can and will add considerably to the rate and ultimatedly how much will be paid back in interest.</p>

15

<p>Basically, consumer debt (including your mortgage) is not factored into financial aid. The only thing that your outstanding mortgage would effect would be your available home equity. To be honest, you would have to have a TON of consumer (other than mortgage) debt to make it worthwhile to roll it into a mortgage. </p>

<p>To the OP...so how do you have 0% finance charges?</p>

16

<p>they offered them to me. Some are lifetime and were offered when rates went really low. they do have provisos - must do at least two purchases where int is chrged as long as there is a balance; but the minimum purchase is $1;so I pay 10 pct on $2 per month, while the other 10,000 is int free. a couple expire in a yr, then I dump them to another similar acct for a $40 fee. it is a house of cards and I bet they'll change it at their whim when rates inevitably go north. So this is a good reason to throw them into the house - at least the 1yr ones.</p>

<p>The house of cards image I am invoking is similar to the students' loans. "Like father, like son". I really am teaching them well.</p>