<p>We have been fortunate enough to save enough money to pay off our mortgage in the next couple of years. Our son is a Sophomore. Are we better off paying off the mortgage, or keeping the mortgage and banking the money? Do colleges hold it against you if you do not have a mortgage? Our son is looking at private D3 schools, he will likely swim in college, but there is no athletic scholarship at that level. His current unweighted GPA is 3.92, Honors and AP classes. We are hoping for Merit Aid and other Financial Aid due to our income level. Thanks. </p>
<p>Are these private schools FAFSA schools or Profile?</p>
<p>Two are FAFSA. One of his college choices is University of Chicago, they have both the FAFSA and Profile listed on their website.</p>
<p>Don’t colleges ding u harder for having a pile of ready cash?</p>
<p>Knowing their formula would be helpful but presumably easiest way is to guess at their formula by going into their college cost estimator and comparing a small mortgage (ie less home equity) vs. no mortgage and less cash/savings and see which is a higher percentage and then deciding if the difference is enough to matter.</p>
<p>That is what I am wondering GMTplus7. I thought I had heard that if your house is paid for some colleges will hold that against you. So, which is the lesser of two evils, cash or mortgage free?</p>
<p>Yup, what 2018RiceParent suggested - try the net price calculators for each scenario.</p>
<p>I think you will probably find that paying off the mortgage is better.
For one thing, you can borrow against your paid off home again if necessary.
Also put as much of the rest of your cash as you can in a Roth IRA.</p>
<p>Generally, for FAFSA only schools, paying off the mortgage is more beneficial than having a pile of cash, since home equity isn’t normally considered.</p>
<p>Not sure on the FASFA side, but once the mortgage is paid off, you will not have any acquisition indebtedness if you later decide to take out another mortgage. That’s tax guy talk for “you won’t be able to deduct the mortgage interest.” So be careful before you pay it down. </p>
<p>@scholarme presumably ideal is to use Roth because these can be taken out again later (the after tax contributions, not the earnings).</p>
<p>If you do withdraw back out later what you put into a RothIRA to pay off college (the original contributions, ie after tax contributions, not tax-free earnings) - is this even reported? Since this money is after tax and a retirement asset putting maximum in RothIRA each year and then pulling it out if needed (if college expenses were too high) would never affect FAFSA or CSS right? and in some cases the math might work out better than keeping more home equity (or refinancing).</p>
<p>I can see why withdrawal of earnings on a Roth would be reported (that is untaxed income), but
are there any cases where Roth IRA withdrawals (not of earnings, but of contributions) would have to be reported?</p>
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<p>And cash/savings often has a slightly higher percentage expected contribution than home equity in CSS schools from what I remember</p>
<h1>9 In general, after-tax contributions to a Roth IRA can be withdrawn any time. Earnings have special rules.</h1>
<p>Check this out
<a href=“Roth IRA Withdrawal Rules — Oblivious Investor”>http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/</a></p>
<p>I am not sure about reporting rules.</p>
<p>post #8 - you can deduct mortgage interest, whether it is purchase money mortgage, a refinance, or a second. It just needs to be secured by your home.</p>
<p>I can’t imagine a scenario where it would be better to have a mortgage and cash in the bank. Many schools and FAFSA don’t consider the equity in the primary residence, and those schools that do consider the equity are certainly going to consider cash. The question isn’t whether you have a mortgage or not, but what is the value of the equity in your home. The value is either considered or it’s not, and so if you have a home valued at $200k and paid off, or have a mortgage of $15k with $15k in the bank in cash, it’s a wash - you still have $200k in assets.</p>
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<p>If it’s actually cash. If it’s in stocks/bonds/etc anything that will trigger a capital gain if you cash it out it’s better to leave it be since it will shoot your income up.</p>
<p>Your assets are tapped at 5.6% additional family contribution for FAFSA purposes…after an asset protection allowance. It’s possible you wouldn’t have any difference in your FAFSA calculation regardless of what you do.</p>
<p>I have to ask…what would be wrong with using some of this money to pay for college costs?,</p>
<p>For Profile schools that do calculate home equity, some will cap available equity at a certain multiple of income, so it may still not matter.</p>
<p>@2018RiceParent - I believe that withdrawals of ROTH contributions are reported for FAFSA purposes as non-taxed income.</p>
<p>@Madison85 I hope not that would make little sense as they are not income and were already taxed. The idea that post tax income would get counted “twice” is really annoying. If I contribute 5500 to a Roth IRA I would be taxed on the income and a percentage of that was allocated into my FAFSA EFC. If I withdrew it later in the year (not earnings, but post tax contributions) that would be counted as income TWICE. How annoying.</p>
<p>Well I suppose FAFSA doesn’t have to make sense for tax purposes. If you withdraw (previously taxed) money from your ROTH, FAFSA logic likely considers that you therefore have cash available for education expenses.</p>
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