Are you in need of urgent cash to finance your kid’s college for the first semester? Is your kid getting a scholarship, and are there several things you need to handle? Where do you go? If you own a home, here is the good news: it is possible to consider various options for using your home equity to get cash to fund your kid’s education. However, before you go for these options, knowing how they work and which will work best for you is crucial. Remember, your home equity is the difference between your home’s worth and how much mortgage you still owe. Nonetheless, here are three available options you can pick to finance your needs. Read them to understand what they entail and choose the one that suits you best.
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Home Equity Line of Credit (HELOC)
HELOC is one of the best financing options you can take against your home equity. It is similar to a home equity loan since it is a second mortgage that lets you get cash whenever needed. HELOC is different from a home equity loan because you do not get a lump sum with this kind of loan. Instead, it works like a credit card, where you take the amount you need up to a specific limit when you need it. Then, you will make payments based on what you have used. However, understand that the loan is treated separately from your mortgage. So, you will need to make two monthly payments- the mortgage and HELOC. It is essential to speak with a Home Equity Line Of Credit Consultant to understand how the loan operates and decide if it is the right option. One great thing about getting HELOC from businesses like Replace Your University is that you only start paying interest when you borrow, and the interest rates are typically low.
Home Equity Loan
You may also tap into your home equity with a home equity loan, where you get a lump sum amount that you will pay in monthly installments. The lender takes the house as collateral, which means you could face foreclosure should you stop repaying. With a home equity loan, you get a lump sum with a fixed interest rate. This loan will work best if you have a low mortgage interest where you will not strain with the monthly payments.
Cash-Out Refinance
Cash-out refinance replaces your current mortgage with a new one, so you get a larger loan than what you already own. You also get a lump sum even though it will work best if your home equity appreciates. You can use it to do anything, although it is advisable to use it on a good investment like education or business. Another good thing is that you get a lower interest rate than what you were paying with the previous loan. The only downside with cash-out refinance is that you will start over with a new loan.
Bottom Line
These are three great financing options you can pick to cater to your kid’s education. We hope you have understood how they work and how home equity can help you sort out cash emergencies. Nonetheless, using the loans for the right purposes and having a reasonable repayment plan is advisable.