<p>Would it be advisable to just take out a loan through our home and pay it back through a mortgage? </p>
<p>My parents have had their house paid off for a while, but tuition for my college balances out to about $6,000 a year for the next four years(Im a freshman this fall and Ive gotten a lot of scholarship help obviously). Assuming my parents can pay the $6,000 for this coming school year by the time the 09-10 fall semester comes along, would it make sense to just take out enough for this year, or should we take out a mortgage loan to cover all four years? Does it make a difference either way? </p>
<p>Sorry if I'm unclear, I don't really know the ins and outs of a mortgage.</p>
<p>If they take a loan out to cover all 4 years then the borrowed money will be sitting in the bank as an asset when you file FAFSA so will increase your EFC and reduce possible financial aid. They would be better off getting a home equity line of credit (if possible) where they just borrow the money as and when needed. Also they should check and see whether the interest rates for a HELOC or mortgage are better than that for student or PLUS loans.</p>
<p>HELOCS are mostly variable loans and your access to the HELOC can be restricted. A mortgage will entail closing fees which will increase the cost. Do not look at i-rates but look at the total cost of borrowing and repayment.</p>
<p>Talk to the financial aid office at your school and see what suggestions or help they can provide. They may be able to give you a lower cost loan if nothing else.</p>
<p>Have you applied for financial aid via FAFSA? Stafford loans are available to all students with interest rates of 6% if there is need or 6.8% if there is not. The maximum for a freshman is $5500 which would almost take care of the $6000 shortfall.</p>
<p>I would always do the Stafford loan over a HELOC. You can't predict the value of the home in todays market and the interest rates on
Staffords are not that much more than a HELOC. If for any reason circumstances change you won't be risking the home with a Stafford.</p>
<p>This question comes up quite often, and there is no one good answer. It depends on your family's total financial picture and the FA policies of your college. For FAFSA only schools, home equity is not an issue as it is not counted as an asset. For schools that use other forms and do include home equity, you have to check and see if the amount of home equity is a big liability for financial aid. If your family has debt outstanding, it is wise to lower that with home equity amounts if that will reduce assets in your case, since other debts will not help you in terms of financial aid. Unless your situation is such that the home equity balance is a tipping point for financial aid, there is no reason to be concerned about it.</p>
<p>As to borrowing from home equity vs taking out PLUS or Stafford loans, the way I look at it is that those school loans provide only a window of opportunity. You cannot get those loans later or for other reasons. If you take home equity loans, and a year later need money for medical or emergency reasons, you cannot retroactively get student/parent education loans to replace the home equity amounts. You can much more readily use the home equity loans to pay off education loans later. Also you won't lose your family home if you cannot repay student loans. Though the penalties are not lenient, there are avenues of repayment available that do not include losing your house.</p>