Using a Mortgage Refinance To Pay for College

Time flies when your kids are growing up, doesn't it? Your son or daughter is in high school now, fast approaching college, and tuition expenses are rising quicker than the balance in your college savings fund. Before you tell your rising scholar that it's time to join the working world, consider a cash-out mortgage refinance. The reasonable refinance rates available can help to fund that critical college education.

Understanding the Cash-Out Mortgage Refinance

A refinancing mortgage replaces your old mortgage with a new, larger one. If, for example, you owe $100,000 on your mortgage, but your house is worth $300,000, you could raise $150,000 cash by refinancing the $100,000 mortgage with a $250,000 loan.

Things To Consider

The three factors determining how much cash is available to you when you refinance your mortgage are your equity, your income, and current refinance rates.

• Equity. Many homeowners have built up sizeable equity, particularly in recent years as home values have soared. The more equity you have, the more cash is available to you through a refinance.
• Income. Your monthly cash flow might put limits on how much money you can borrow. Consider a longer loan term, i.e., 30 years instead of 15, if cash flow is tight. On the flip side, you may have a larger income now than when you first purchased your home. If so, you might be interested in a shorter term to save money on interest payments and get the mortgage paid off sooner.
• Interest rates. Depending on the age of your existing mortgage, a refinance might lock you into a lower interest rate than you were paying before. If rates are higher, consider the tax benefits of the interest that you pay on your mortgage when deciding what you can afford to borrow.

A mortgage refinance might be a necessary step towards giving your rising scholar every advantage possible. Now that you know the basics, you can research the specifics with a few different lenders to compare terms and understand your options.