I’m about ready to pay off my mortgage, but as I’m in the thick of updating financial aid forms for inquiring schools, I’m wondering if I’m better off by having a mortgage payment. I guess the question is: Does it help in the FA game to show that I have a mortgage payment or does it have no effect?
For peace of mind, we paid off our mortgage. I think you will find that whether this is a good choice depends on the school to which your child applies and whether they use federal, institutional, or consensus methodology. We are waiting on all our daughter’s acceptance decisions, and so far the NPC and aid has been better overall from the private (institutional) method colleges than our state flagship college. Good luck!
Mortgage payments have no effect. Some schools will consider (first) home value, others will not. FAFSA will not. The primary driver of federal aid is income. Assets have much lower impact.
It’s better for the FAFSA calculation to have paid off the mortgage on your first home since that equity is not counted whereas the same amount of money in savings would be. The impact on the Profile differs by school but you won’t be worse off and at some schools (those that limit or ignore the effect of primary home equity) you will see a benefit which could be as much as on the FAFSA.
Thanks for the replies. I guess I’ll proceed with paying down the principal.
If you will still have a cash cushion after paying off the mortgage and still have money coming in, it will give you some wiggle room to pay for college from the freed up cash flow. Look at your overall situation. Of course you wouldn’t want to take all your cash to pay off the mortgage and not be able to pay the difference between COA and the financial aid awarded.
it depends.
Your primary residence is not used on the FAFSA. However, money in the bank, under the bed, stuffed in the mattress is an asset on the FAFSA.
For schools that use the CSS profile or their own finacnial aid form, each school treats home equity differently
As a general rule, you are better off having your money in a house that is your primary residence than in investments or cash. FAFSA does not include the value of your primary residence. Though CSS PROFILE schools, along with those who use additional financial formulas, vary widely in how they count your house, they all count money tucked into other investments at face or market value. Some schools cap the value of the primary residence or do not count it at all or only at certain income ranges and home values.
Yes, it depends whether for FAFSA or PROFILE, easier for FAFSA to keep the primary residence and do not show any profit from the sale but for PROFILE, they will find out about all your assets one way or another.
@LMK5 When will you be filing the FAFSA? I was told the look-back extends two years prior to application; I would only pay it off if you think it will make it easier to meet your EFC as shown on the NPC.
What look back are you talking about? The prior prior tax year info is used on the financial aid forms…so 2017 tax year info is on the 2019-2020 forms.
BUT assets are reported as of the day you FILE your FAFSA or Profile…not two years before. So…for this poster…if they have money in a bank account, that will counted on the FAFSA as an asset and assessed at 5.6% of its value…above the asset protection allowance. If they use that same money to pay off their mortgage BEFORE they file the FAFSA, that asset will no longer be counted. If it’s for their primary residence, then that is also not included on he FAFSA.
If the student attends a Profile school, primary home equity is dealt with in varying ways from not counting at all t9 being fully tapped…depending on the policies of the college.
Regardless…the family will have no mortgage payment and this could free up cash from current earnings to pay college costs.
@thumper1 I’m sure you’ve got more experience with this than I do. My understanding is that when they look at ‘17 tax returns, they will see reported income from assets and can make a reasonable extrapolation to value of those assets.
Assets are reported as of the day you file your financial aid forms. You can spend down every penny of your assets, and this will not matter to the colleges as long as you do it before you file your forms.
If the money is in your account the day you file…the it’s counted as an asset. If it’s not…it’s not.
And people DO save money for things like houses…and use that savings to buy houses before filing their FAFSA forms. And that is OK.
The reported “income from assets”…do you mean the interest on those accounts? It still doesn’t matter…if the money is NOT in your account the day you file the forms.
No. Asset values are reported and evaluated as of the day that the financial aid form is completed/submitted. What if a parent has $1M in assets and for one particular year there were no earnings to be reported on a tax return – how would a “reasonable extrapolation” be made from the tax return to value the assets?