I’m Matt Carpenter, College Aid Pro, College Aid Professionals. Does it make sense if you know of a family that needs to borrow to refinance or take out a home equity line of credit? To basically borrow against their home? The answers is maybe.
There are no universal recommendations when it comes to the best way that a family should borrow for a college education for their student or multiple students. However, sometimes there are certainly scenarios where it makes sense to consider using a home equity loan. We have to check a couple of boxes first. Number one, obviously we need to be homeowners with some amount of equity and established credit that will allow us to do this and get an attractive rate. Number two, it also has to fall in line with the rest of your overall criteria and we like to say your philosophy. There are some folks that are philosophically opposed to accessing home equity to pay for a college education. We are not making a judgement on whether that’s right or wrong, each family will need to decide if that’s a good decision.
The other consideration is, getting the most attractive rate that we can borrow. If that is what our primary goal is, then using your home equity is a good option because those rates are about half of what you would pay in interest compared to the federal government loans.
The federal government rate is about 7%. It’s going to change again for next year in a few months, but a home equity loan would be about half of that in terms of paying interest with our home equity. Now, obviously, there’s a lot of variables there and everybody and every lender is going to come in at a different rate, but by and large, we’re going to beat the federal government’s education program by at least a few points, or at least the parents federal loan program.
Should we use home equity to borrow? The answer is sometimes; and maybe to get your best answer, you have to tailor it for your particular families criteria.
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