What’s the number one financial concern of 73% of parents? Paying for the college education of their children, according to Gallup
With an average of more than $200,000 in home equity, many parents consider borrowing against that equity to help pay college costs. A Home Equity Line of Credit (HELOC) allows borrowers to draw from their home equity line throughout the course of their student’s enrollment. Additionally, a HELOC’s ten-year draw period is especially beneficial for parents with more than one child in college at the same time, because a single loan can be used for more than one college student. In addition, if they elect to pay both interest and principal monthly, the HELOC balance replenishes itself to help pay for the next child’s college education.
HELOC eligibility is calculated based on the value of the property and any outstanding mortgage against the home. The loan-to-value (LTV) is assessed to determine how much equity is in the property. North Shore Bank requires an LTV of 75%. For example, if the home’s value is $400,000, the bank will take 75% of the value minus any outstanding mortgage. The remaining funds are the equity in the property. With a value of $400,000 and an outstanding mortgage of $200,000, the equity in your property would be $100,000. The maximum debt-to-income ratio (DTI) is 45%. Learn more
Terms and Rates
Depending on interest rates, home equity lines can be an attractive way to pay for college, with many institutions offering a fixed or variable interest rate options. Unlike student loans, the APR on a HELOC does not include closing costs and loan fees in the calculation. As a result, the HELOC APR will be the same as the interest rate itself. North Shore Bank offers a variable interest rate home equity line which is tied to the Wall Street Journal Prime Rate and is adjusted monthly or whenever prime changes.
While some home equity lenders will charge closing costs or loan fees like title or attorneys’ fees, at North Shore Bank the only fees you may see are for Title Insurance, Trust Review and recording fees for old mortgages that were not discharged. In addition, there’s an early termination fee of $500 if the Line is discharged within the first 36 months and an annual fee of $50.00. To see the full disclosures click here.
Comparing HELOC with College Finance Options
North Shore Bank can help families determine how to pay for college based on their unique financial situations. Our College Cost Estimator
details side-by-side financing options – including a HELOC – to help with the decision-making process. In just a few minutes, understand college costs, see how far savings and cash will stretch, and compare all eligible financing options side-by-side.