EchoBay Expert: I need $12,500 for my son's first year of college tuition and I've read that getting a cash out refinance is an easy way to get cash out of my house. Are there any reasons not to do it? My home's value is $120,000 and I have $64,000 left to pay off on the mortgage. Thank you.
Loyal Reader: While getting a cash out refinance is a popular way of funding college tuition, it's not always the best way. The first thing you need to ask yourself is do you really want to put your home up as collateral for your son's education? While education is extremely important, there are other methods of financing college tuition, including grants and student loans.
There's nothing wrong with using the equity in your home to finance your child's schooling, but if for some reason you are unable to make the payments, you're going to wind up losing your home. You also need to realize that your son's first year of college will be just that - one year.
You might be paying that tuition off for a lot longer than that, and what happens the next year when he needs another year's worth of tuition? If you don't know the answer to that question, you might want to consider a home equity line of credit rather than a cash out refinance.
With a home equity line of credit, you can access the funds for your son's tuition as you need them and your credit limit will go back up as you pay the balance off.