Money / Financial Planning
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With interest rates on the rise, now is the time to consider refinancing your home before interest rates peak. Whether you’re refinancing for extra cash, to pay off high-interest credit card debt, to lower your mortgage rates, or even to help your child pay for college, it could be smart to act sooner rather than later.
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However, refinancing your home is not for everyone. And it’s especially important to weigh all the factors if you are considering refinancing your home for your child’s college education. After all, a mortgage is a loan backed by collateral: your house. If you do a cash-out re-fi which increases your mortgage payments and then realize you can’t pay the larger monthly bill, your house could be foreclosed on.
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But refinancing your home to lower your payments, either by reducing your interest rate or extending the loan term, can be a smart tactic to free up cash. Depending on how many years you have until your child starts college, you can put the money you save into a high-yield savings account — or use it to fund a 529 college savings plan.
For instance, U.S. News & World Report points out that if you free up $200 per month, you could save $12,000 in five years (and that’s assuming you aren’t investing the money to earn interest or dividends). That’s enough to pay for two years of community college, based on recent data from the National Center for Education Statistics.
Ask yourself the following questions before you refinance your home.
- Is my credit score good enough to qualify for a lower interest rate, which would lower my monthly payments?
- If I extend the mortgage term to reduce my payments, will I be able to pay off my mortgage before I retire (or be able to afford the payments in retirement)?
- Will refinancing my mortgage allow me to save enough money to make a difference before my children reach college age?
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Refinancing Not For You?
Before you opt to refinance in order to help your children out with college costs, make sure you are on the right path in terms of your own retirement savings. You don’t want to …….