Column: Home Equity Line of Credit Can Ease Financial Impact of College

Money IQ
By Sarah Hosford

The costs associated with life can be overwhelming, and with young adults packing up and heading off to college all over the country, this feeling is known by many. 

One way to help reduce the financial impact of college is to obtain a Home Equity Line of Credit (HELOC.) 

A HELOC is offered by banks; savings and loans, brokerage firms, credit unions, and other mortgage lenders, and allows the homeowner to tap into the equity in his or her home. 

The equity in your home is the difference between its value and what you owe on it. 

A HELOC is a revolving credit mortgage, which owners can access quickly with the ease and convenience of a check or credit card.

This means that you can borrow, pay back, and then borrow again. By using the equity in your home, you may qualify for a sizable amount of credit, which is available for use when and how you please. 

For example, you might want to use this type of loan to add a room to your home; pay your child’s college tuition, pay off existing debt such as high interest rate credit cards, or for use in an emergency situation.

The term of a HELOC can be as long as 15 or 30 years, and interest rates can be fixed or variable.

Benefits of a HELOC are that no payments are required until money is advanced (via checks or credit card), and payments are based only on the current outstanding balance, not the entire balance of the line of credit. 

Some programs will require you to pay closing costs, an initial sign-up fee, annual maintenance fee, or additional fees (called points) when the credit line is used.  

When shopping for a HELOC loan, it is best to ask about any fees, rate changes or restrictions that may be associated with the loan.

Interest on such loans may be tax deductible, but make sure to consult a tax professional for the latest information on what qualifies as a tax deduction. 

A HELOC may not be the answer to all of the costs that life provides, but it should be considered as an option.

Editor’s note: Sarah Hosford is the Vice President of Residential and Consumer Lending at Los Alamos National Bank. She joined LANB in 2002. She currently manages and mentors a team of 31 loan officers, processors and administrative staff in Los Alamos and Santa Fe. Hosford has spent the majority of her life in Northern New Mexico and currently lives in White Rock.

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