How To Use A Home Equity Loan
To Fund A College Education

With college costs soaring faster than the rate of inflation, many parents are concerned about their ability to fund their children's education. Government loans are available, but they will only cover so much. Savings plans can help too, but you have to start investing early to take full advantage of compounding interest. What other education financing options are there?

If you are a homeowner, you may have sufficient equity in your home to take out a home equity loan or line of credit. Home equity loans and lines of credit can be used for any number of purposes, with education financing being one of the most popular. And remember, the interest you pay on a home equity loan or line of credit may be tax deductible (consult your tax advisor regarding the deductibility of interest).

How does it work?
Basically, you secure a loan with the equity in your home. The amount of equity you have, along with other qualifications, will determine the maximum loan or line of credit amount.

At Dollar Bank, we usually limit the loan amount to 80% of the current value of the home to reduce our risk. This is called the maximum loan-to-value, or LTV. We do have programs offering up to 100% LTV. Please speak to one of our Representatives if you are interested in a higher LTV. We may be able to accommodate you.

There are two things that you will need to estimate the equity in your home. First, you will need to have an approximate current market value of your home. You can use a recent tax assessment, or the sale price of a similar home that has sold recently in your neighborhood. Second, you will need to know the remaining balance on your existing mortgage.

You are now ready to determine the equity available to secure a home equity loan or line of credit. For assistance, review the example below.

In our example, we are assuming a home value of $100,000 and a remaining mortgage balance of $50,000. The maximum qualifying loan amount in our example is $30,000. Enter your mortgage information to see how much you may qualify for.

Of course, other factors are taken into account when making a home equity loan decision, such as credit history and employment.

Example
What is the value of your home?	$ 100,000	$__________
Maximum LTV percent	x .80	x .80
Maximum loan-to-value	$ 80,000	$__________
Current mortgage balance	$ 50,000	$__________
Maximum loan amount	$ 30,000	$__________

Choosing the home equity loan that best suits your needs.
A home equity line of credit allows you to draw against a pre-approved credit line whenever you want, so you can write a tuition check whenever you need it. A home equity term loan lets you borrow the money that you'll need for school expenses all at once. From fixed rate loans that give you the security of knowing how much your monthly payments will be for the entire term, to loans that let you take advantage of changing market conditions, Dollar Bank can find the right home equity term loan for you.

A home equity loan is one of many financing resources that your family may have available. Your local high school guidance counselor or college financial aid representative can be a good source of additional information.

Of course, Dollar Bank offers the full array of government-sponsored higher education loan programs. With the availability of a home equity loan or line of credit, you can find the combination of products and terms that are right for your budget as well as your child's needs. Talk to a Dollar Bank Representative today.

To try our loan calculators, click here.

The information presented in this publication is general in nature; it is not our intention to provide specific advice to individuals or a comprehensive discussion of the subject matter. We suggest that you consult with your financial or tax advisor, accountant or attorney to obtain specific advice or comprehensive information.