If your teen is about to graduate high school and enter college, you may wonder if taking a second mortgage would be a good option for paying the teen's tuition. While this is not always a good option, it can be in some cases; however, you must make sure you have enough equity in your home before you consider using this option. Here are several factors to consider that would make this a good option if you need cash to pay for your child's tuition.
The Interest Is Tax-Deductible
One benefit of borrowing money on your home is that the interest you pay on the loan will all be tax-deductible. Interest paid on most other types of loans is not tax-deductible, which makes using a second mortgage a great option for many reasons. If you are looking for more ways to reduce the taxes you must pay each year, this could be a great way to pay the tuition bills.
The Interest Might Be Lower
A second thing you will need to compare and evaluate is the difference between the interest rates on second mortgages and student loans. If you do not have cash in the bank to pay the tuition, the only other option besides a second mortgage, might be having your teen take student loans. In most situations, the interest rate on student loans will be higher than the rate is on second mortgages. This is something you should look into, though, to make sure you can get a low rate. If your credit is bad, for example, you might not even qualify for a second mortgage. If you do qualify, you might not have a good interest rate.
You Can Pay It Off Quicker
If your two options are taking student loans or using a second mortgage, you should also consider how long it will take to repay these loans. If you take a second mortgage, you will have to begin repaying the loan right away. The payments may last for 5 years or longer, but you are likely to be able to repay the loan within 15 years. With a student loan, your teen would not even be responsible to start paying for the loans until he or she is completely finished with school. This means that the loans might not be paid off for 30 years from the time he or she takes them.
These are three good things to think about if you are looking for a way to pay for college tuition. If you have equity in your home and would like to find out more about getting a second mortgage, contact a mortgage lender like Mortgage Associates Ontario today.