College provides students with direction, opportunity, and a lifelong community, paving a path to a fulfilling future. But with rising tuition costs, you and your family may seek various means to fund your child’s higher education.
While school and private loans are considerable options, with them you often face higher interest rates and limited funding amounts, increasing the financial burden during and after your college years. If you own a home, a home equity loan or line of credit (HELOC) may be a more effective solution in supporting your academic pursuits.
Exploring alternatives to traditional student loans
In taking out a mortgage to purchase a home, every payment you make gets you closer to fully owning your property. Put another way, while you are making your monthly mortgage payments, you’re building equity in your home, which is the difference between the current market value of your home and the amount you owe on your mortgage. Even better, any increase in the market value of your home goes directly to you, helping you set a strong foundation for financial security.
Home equity loans and HELOCs allow you to borrow a set amount of money based on the home equity you’ve accrued. These loan options provide certain advantages that often outweigh those offered by traditional student loans:
- Lower interest rates: The college you attend may offer you loans to help pay for your tuition and other costs, but these rates are generally higher than those for home equity loans and HELOCs. Lower interest rates are important when you enter your repayment period; a lower rate lessens the amount you owe every month. It also gives you the flexibility to pay more than your minimum payment each month and pay off your loan faster, thereby paying less in total interest.
- Larger loan amounts: The more home equity you hold, the more money you may be able to receive.
- Quick closings: A fast and seamless loan application process enables you to access your funds promptly, helping you meet time-sensitive tuition deadlines.
- Versatility: While a large portion of your home equity loan or HELOC will go to your tuition, you can also use the money to support your other college-related costs, such as room and board, commute, meal plans, textbooks, and other school materials.
The difference between a home equity loan and a HELOC
A home equity loan and HELOC can both be used to pay for college, but they have distinct differences. With a fixed-rate home equity loan, your lender gives you a lump sum based on your home’s equity. Your interest rate is, as the name implies, fixed. The amount of each monthly repayment is consistent throughout the life of the loan.
On the other hand, a HELOC functions more like a credit card. It provides a line of credit that you can use up to your approved limit throughout your draw period.
Tap into First American Bank’s Home Equity Loan Services
Home equity loans and lines of credit don’t follow a one-size-fits-all approach. Everyone has different financial circumstances that require personalized solutions that work best for their needs.
At First American Bank, our team of experienced loan professionals are ready to guide you on which loan option may be best for you and how much home equity you can access. Whether you decide on a home equity loan or a HELOC, we work alongside you from initial application to approval through repayment to meet your financial goals and successfully fund your college journey.
