Home equity loans are also easier for borrowers to manage, payment-wise. Most HELOCs allow borrowers to only pay the interest on the loan balance for a fixed period of time (usually five to 10 years), giving you a bit more flexibility than with college loans. With those loans, after the student graduates, you’re paying for principal and interest.
The downside? A home equity line of credit adds to your mortgage amount, making it a longer loan to pay off. It’s also a tougher loan to get these days, as many lenders have significantly reduced how many HELOC loans they grant. Some banks, like Bank of America (Stock Quote: BAC) have shut the spigots off, and frozen current HELOCs even as borrowers continue to pay off the loans.
That said, if you have — or can get — a home equity line of credit, you can easily use it to augment your current college financing plan. That’s especially true if you can’t get approved for the amount of money you’ll need to pay for college.
Think of it as a backstop plan. Because when it comes to planning for college cost, it’s always good to have a plan B.
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