Home equity loan to pay tuition?

[Anonymous]

What's a HELOC exactly?

Is it even possible to take out a home equity loan right now?

[Anonymous]

PP here. Sorry, just googled HELOC....

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here. Thanks for the advice. FWIW, we have a fairly sizeable amount of equity, no debt other than our mortgage (the mortgage is probably roughly 30% of the home's value), and (knock wood) a steady income that could cover a few hundred dollars a month in HELOC repayment. We are fine with our children going to public universities for college.

Do you have an existing HELOC? Many banks are calling in HELOCS or offering smaller ones than in the past. If you don't have one, your house will have to appraise at the value you expect it to. You are assuming you have "a fairly sizable amount of equity," but the truth is that right now, all of us have much less equity than we think we do. If you want to explore it, just be aware that HELOCs, like other credit opportunities, are drying up for many people.

OP again. Thanks for the caution. I already factored in the drop in home values, and we do still have a sizeable amount of equity (knock wood); we were fortunate to have bought before the frenzy of the last few years. Not as much as a year ago, LOL, but still...

[Anonymous]

How can a bank "call in" a HELOC?

[Anonymous]

Anonymous wrote:How can a bank "call in" a HELOC?

same way they can cancel or decrease any line of credit
typically, if you haven't taken out the $$ yet, the bank can just tell you it's no longer available

[Anonymous]

Anonymous wrote:

Anonymous wrote:How can a bank "call in" a HELOC?

same way they can cancel or decrease any line of credit
typically, if you haven't taken out the $$ yet, the bank can just tell you it's no longer available

Thanks.

[Anonymous]

This thread has already fully answered OP's question admirably, but I would like to throw in one more thought. There is more than one way to tap one's equity. It is certainly a less popular method, but one can sell the current home and move into one that is less expensive either because it is smaller or is located farther out from the city. Yes, I know, few people want to do these things! But it is much less risky from a financial perspective, as you are not left owing on a second loan. So a change in employment or other unforeseen challenge will not be as difficult to manage.

This strategy forces one to truly prioritize, rather than seek a way to "have it all." Our family decided that a private education for DC was a top priority and so we have stayed in a small home with no mortgage to make it possible. Staying in a small home is no doubt easier than deciding to move out of a larger one, but it is essentially the same decision. And yes, private schools DO require that both parents work and home equity is tapped in one way or another before financial aid is offered. Private schooling is a "want" rather than a "need."

[Anonymous]

I really respect PP's approach to this issue. I'm not saying that it's imperative to value private education over a more expensive house, but if that's where your priorities are, downscale/cash out rather than max out your debt.

[Anonymous]

We're still in a small house. Never moved "up."

[Anonymous]

There is a clear mistake above -- schools DO take into consideration home equity when applying for financial aid. Most independent schools use the School and Student Service for Financial Aid (part of ETS in Princeton). There is an elaborate form to fill in, and it is analyzed by SSS and then sent to each of the schools you apply to or attend. This analysis is used to calculate aid, and puts everyone on an apple to apple level playing field. You also must provide your most recent tax returns too directly to the schools.

This form specifically asks if you own a home. It asks about your mortgage and other encumberances. It asks if you rent, what your monthly rental payment is. It is very thorough. It even asks about your children's savings and college accounts. There is an expectation that those are resources too, which could be tapped. I was actually dumbfounded when learning that they expect my son to tap his very minimal college account (incurring a penalty actually too) for a few hundred dollars. They take in consideration the cost of living where you live as well. For those applying for aid, it is worth the extra $15 or so to receive a copy of their analysis.

The schools can then make their own rules and judgments. But there is one independent school that my DC was accepted to that would not provide any aid at all since we were homeowners. None. So that made turning them down easier.

These schools have limited funding (though it seems like a lot to us) and costs keep escalating. It is difficult to make such decisions, but they have to have certain guidelines in order to know whether it is right to provide x amount of aid to one family and y amount to another. These guidelines may differ among schools, but are based on the SSS. This information is looked at very carefully, it even asks amounts you spend on vacations, clubs, other investments, bank account, credit card debt and so on. Schools are not going to hand anyone free money without feeling comfortable knowing that the family truly needs it to be there.

[Anonymous]

I guess my initial revulsion to idea is because it seems like that is digging oneself into a hole financially
And while I hold the philosophy of valuing enrichment of the mind above all other treasure, being old and unable to pay your bills seems scary
Cos a HELOC is somewhat like a 2nd mortgage, right?

[Anonymous]

Anonymous wrote:
Cos a HELOC is somewhat like a 2nd mortgage, right?

Yes. A HELOC is a second mortgage. Many people get them when buying a house if they don't have 20% to put down. It avoids the need for PMI.