<p>I've read in several posts that the "middle class" family has the advantage of being able to "tap into" home equity. I might be too old-fashioned, but to me that is nothing less than taking a second mortgage on your house. Whether an equity loan or an equty line of credit, it is a secured loan which must be repaid, with interest. Unless I am missing something, there is no way to just get some money out of your house and not have to begin repaying it immediately. Is there?</p>
<p>Nope, you are right Merkur, and if you have equity not due to your amazing investment prowess, but rather to living in the right place with massive appreciation you might have to avoid profile schools, unless your income has also appreciated, as you may be unable to afford those loans.</p>
<p>No, Merkur. You not missing anything there. There are times home equity can be very useful in the college financial aid situation. If you have other debts, other needs, and it is your home equity that makes a difference in your aid package, you can use that equity to pay off those debts. FA does not take into account debts but will take into account home equity at various threshhold. For those families who are just on a threshhold, that can make a big difference.</p>
<p>Also if you have home equity, you have the choice of borrowing it rather than taking out some loans that may not be as flexible. You can usually deduct the interest paid, and then the tuition paid with it, pretty cool, huh?</p>
<p>But tapping into home equity can be a major mistake. You can go bankrupt and lose your loans that way. You can't pay your home equity loan, you lose your house. </p>
<p>It is just one more venue, one more choice to have. Plus, it means you have some assets that someone who had rented all along may not have. Also if you have a lot of home equity, it might be time to consider selling the house, and moving into something smaller and cheaper, in a school district that isn't as good now that your kid is going to college. Just more options.</p>
<p>Who is to say what your house is worth, espeically in these time of the real etate crisis. Can I go by what the tax assessed market value is on our home or what the cost I <em>think</em> I could get if I put it on the market? There is a BIG difference in those two figures.</p>
<p>This is our first time going through the college process.</p>
<p>It is worth whatever some one will pay for it today ;) Or whatever the mystery appraisor says it is worth.</p>
<p>one nice aspect of the HELOC is the flexiblity of timing without fees- you can use it for liquidity. We used our several times in the past couple of years for paying school fees and even for a short term loan to one family member or another who had a timing crunch. You can pay your school fees today with the HELOC and then pay it off next week when the funds are available to you- or you can start paying it down a bit at a time. Once it is set up there are no new forms and fees, so it is easy to use.</p>
<p>The interest rates are usually variable, which is great now, but risky for the future. I would have to have funded all college costs at the rate 4-5-6 years ago and have had it go up in interest as much as it has actually gone down!</p>
<p>Jerseyshoremom, there are charts that you can use to estimate your house's worth for FA purposes. Whether they are relevant in today's market with the values going down, I don't know.</p>
<p>I want to echo what somemom wrote. We have secured an HELOC from Schwab (no fees). The current interest rate is 4.25% and the interest is tax deductible (check with your accountant). You can borrow any amount of money (up to the limit) anytime and pay it back any time. It is a good rainy day account that you can tap in to if you need the money in a hurry. Just write a check. Of course, you have to be careful about not risking your home due to delinquent payments. The other consideration is that the rate is variable and tied to prime rate.</p>