College is expensive and everyone needs to think about how they are going to cover the costs. Some of the costs include tuition, room and board, meals, books, and spending money.
In order to pay for college, some people consider taking out a second mortgage instead of taking out a student loan. How can someone know if taking out a second mortgage is the answer for them? There are several factors to consider.
The Interest Rate
One of the factors that people need to consider is the interest rate on the second mortgage. The higher the interest rate, the more expensive the second mortgage is going to be.
The total cost of the second mortgage, including the interest rate, points, origination fees, and other expenses, must be weighed against the cost of attending college, which often comes in the form of a student loan. Which is going to be more cost-effective? The second mortgage or the student loan?
The Size Of The Loan
Another factor to consider is the size of the loan. Ultimately, the size of the loan is going to impact the final cost of attending college. The larger the loan, the more someone will have to pay in terms of interest. The size of the student loan should be compared to the cost associated with a second mortgage.
The Tax Implications
Another aspect people need to consider is the tax implications. The interest on a first mortgage is tax-deductible. This is often the largest tax deduction that someone claims. People might assume that the interest on their second mortgage is going to be tax-deductible as well.
Unfortunately, this isn’t always the case. Interest on a second mortgage is tax-deductible only if the proceeds from that mortgage are going to be used to pay for the property. If they are being used to pay for education, they are not tax-deductible.
People need to compare the tax implications of a student loan versus the implications of a second mortgage.
Using A Second Mortgage To Pay For College
These are a few of the factors that everyone needs to think about when trying to finance the cost of higher education. These decisions can have significant impacts on someone’s financial future.
Consult with your trusted home financing professional for a review of your personal situation. They can guide you through the process to make the best decision for your family.
