Investing in Your Future: How a HELOAN Can Help Fund Your Education

Higher education costs have increased significantly in recent years. So, if you’re looking to return to college, you may be hesitant, especially if money’s tight. But you don’t have to put your dreams on hold. A home equity loan (HELOAN) can help finance your education. 

A HELOAN lets you borrow against the equity in your home, the difference between what you owe and what it’s worth. It acts as a second mortgage with a fixed interest rate. You’ll receive the funds in lump sum and make equal, monthly installment payments over time.

Most financial institutions let you borrow up to 85 percent of your equity. To illustrate, assume your home value is $425,000 and your outstanding mortgage balance is $275,000. In this case, you could be eligible for a HELOAN of up to $86,250 ($425,000 * .85 – $275,000).

To qualify for a HELOAN, you need a solid credit score and a consistent, verifiable source of income.Lenders also assess your current debt-to-income (DTI) ratio, the value of your property, and other factors to determine your loan amount.

There are no usage restrictions on HELOANs. That said, many homeowners use the funds to cover higher education expenses. These include college tuition, fees, room, board, and other related educational expenses.

This could be a smart financial move for many reasons. Interest rates on HELOANs are often competitive with traditional student loans. Plus, you could get a repayment term of up to 30 years and a fixed interest rate. So, you can expect a more affordable monthly payment. Always compare loan terms to ensure you are choosing the best offer available.

Still, there are downsides to consider. The most significant drawback is the risk of foreclosure. Your home acts as collateral for a HELOAN. So, defaulting on the monthly payments means you could lose your property. You’ll also likely incur closing costs when taking out a HELOAN. The upside is that you may be able to include them in the total loan balance to soften the blow to your wallet.

Using a HELOAN to cover higher education expenses also reduces your home equity, which can be problematic if you want to borrow against the equity in the future. Or you could find yourself upside down on your mortgage if market conditions change.

It depends on your financial situation. The interest rates on HELOANs can be lower than those of student loans. So, using a HELOAN to pay off student loans could save you money in interest.

Consolidating student loans with a HELOAN could also make your payment more manageable. For example, assume you have five years to repay your student loans. If you take out a 15-year HELOAN, your monthly payments will likely decrease and free up room in your budget.

But tapping into your home equity to pay off student loans isn’t without risks. Consolidating student loans could mean you owe more than your home is worth over time.

If you decide on a HELOAN to help fund your education, keep these suggestions in mind:

Review the loan agreement to confirm the interest rate, loan term, and monthly payment. Also, note the closing costs and any other applicable fees. By doing your due diligence, you’ll avoid surprises once you repay the loan.

Before taking out a HELOAN, calculate the amount you need to fund your education. Only borrow this amount to avoid taking on unnecessary debt.

Preserve your credit rating and financial well-being by paying on time each month. Adjust your budget if needed to avoid credit damage or foreclosure.

Don’t let the soaring costs of higher education and limited finances discourage you from pursuing your dreams.

Consider a home equity loan (HELOAN) as an option to cover your educational expenses. Just remember to carefully consider the risks, read the loan agreement, use the funds responsibly, and make timely payments to protect your credit and financial well-being.

By managing your HELOAN effectively, you can make a sound investment in your future while protecting your financial stability.

All loans and lines of credit are subject to credit approval. Talk to a HomeTrust Bank Loan Officer for more information about HomeTrust’s HELOANs.

The purpose of this article is informational and does not substitute as legal or tax advice. Consult with your tax advisor or legal representative for more information. 

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