College Planning

Using Your Home’s Equity To Pay For College?

From higher interest rates, a larger mortgage, or jeopardizing your retirement, taking out a home equity loan to help pay for college expenses may not be the best idea.

Using Your Home's Equity To Pay For College?

Many people use the equity in their home to help pay for a variety of major expenses. But as one of your largest assets, is taking a home equity loan a good option when it comes to funding your child's college education? The following are three reasons why tapping into your home's equity may not be such a great idea, and why you might want to consider other options to help you make smart decisions about paying for college.

You'll Have a Bigger Mortgage. A home equity line of credit adds to your mortgage amount. So if you're working towards a goal of paying off your home, a home equity loan is simply adding to your existing mortgage. This means it'll take you even longer to pay off your loan.

You're Creating a Retirement Burden. For most people, saving for retirement is a critical goal. By committing to a home equity loan for college expenses, you may be putting your retirement income at risk. The fact is, your home is one of your largest assets, and the equity in your home can be a vital resource in retirement. It's essentially a source of readily available funds that you can tap into in the event you need the cash. Moreover, taking out a home equity loan means you'll have another debt to pay every month.

The Interest Rate. Most home equity loans, or lines of credit, are typically much higher than the rates on federal student education loans.

The equity in your home is something that you have to work very hard to build. As a result, it should be protected and used only when absolutely necessary. For this reason, funding a college education with your home equity may not be the right choice.

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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Pay For College

Thinking about using the equity in your home to pay for college? This article looks at three disadvantages of taking out a home equity loan when figuring out how to pay for college. From spiking your interest rate, to creating a larger mortgage, or endangering the security of your retirement, it's important to look at all of the risk factors associated. While home equity can be an option to help for student loans, there are other options to consider. For more information, visit the Protective Life Learning Center.

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