A Home Loan For College?

A Home Loan For College?

Q: My husband is thinking about taking out a second mortgage loan of $25,000 at a 6.5% interest rate to help save for the college educations of our four kids. Do you think this is the best way to save for college?
— J. WilliamsMaryland

A: I would advise against this strategy because if you are willing to borrow money to pay for their education, you may as well let your children borrow what they need when they are ready to go to college. By then, the interest rate on a student loan may be cheaper than the 6.5% rate on the mortgage your husband is considering.

Trying to pay tuition expenses for four children is a huge undertaking, and investing won’t guarantee you’ll have enough money for four college educations. First make sure that you have established diversified retirement accounts for your husband and yourself so your children won’t have to take care of you when you get older. Take out an insurance policy that will pay the mortgage on your home and also leave your children money they can use for college if they need it. Then save as much as you can in one or more 529 college savings plans that earn interest tax-free as long as the funds are used to pay for college expenses. It probably won’t be enough to pay for all your children’s college expenses, but if you invest well, you’ll be able to help them pay back their loans if you need to in the future.