If you own a home and have equity in it, you may want to consider taking out a home equity loan as a source of funds for your child’s private school or college tuition. A home equity loan is secured by the equity you have built up in your home and can be structured as either a revolving line of credit or a second mortgage.
With a revolving line of credit, your lender establishes a credit limit that depends on the amount of equity you have built up in your home and your ability to make payments. You can then access as much money as you need (up to the maximum amount allowed) whenever you need it by writing a check or using a credit card. Generally, interest rates are variable and tied to an index, but may be guaranteed for an initial period (e.g., two years). Your monthly payments will also vary, depending upon your outstanding balance.
If the home equity loan is structured as a second mortgage, you borrow a fixed amount (typically no more than 80 percent of the equity in your home) that is transferred to you in full at the time of the closing. You must then repay that amount over a fixed term, just like you do on your original mortgage.
The advantages of a home equity loan include tax-deductible interest and, in most cases, a more favorable interest rate than traditional loans. Keep in mind, however, that a home equity loan puts your home at risk because it serves as collateral for the loan. In other words, your lender can foreclose on your home if you fail to repay the loan. In addition, you may have to pay closing costs, points, and other fees to obtain the loan.
Before you take out a home equity loan, shop around and compare the interest rates on home equity loans with the cost of borrowing elsewhere (e.g., financial aid loan programs) to see if a home equity loan is the right choice for you.
If you have questions, contact the experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Disclosures: The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
