If you have managed to save for your child post secondary education, well done. If you have started or managed to put a little aside - great. If you were unable for what ever reason, all is not lost.
Even those that have saved are not out of the woods yet. With the rising costs of tuition and a Post Secondary Education you may find yourself short. So even you need to know your financial options if your planning on helping your children with their chosen profession.
There are options for students; bursaries, student loans, part time jobs etc. But one option you may not have thought of is your home equity.
Take a look at the chart below and see where you stand.
The numbers are staggering and they continue to climb. As your child heads off to college or university this year or in 2020 the fact of the matter is that it is not going to be cheap.
With mortgage rates at historical lows it may be that your best option is accessing some home equity to help with the burden of Post Secondary Education. We are in a unique situation where our homes are gaining equity and market value quicker than in the past. So, as you borrow from your equity right now, the market value of your home continues to rise and helps to offset the equity loan on your home. It is kind of like a perfect storm so to speak.
For instance. If you take out $100,000 (for ease of conversation) on your home at 2.25% 2 year term interest over 25 years your monthly payment is $435.61 per month
A loan at the same interest rate for $100,000 over ten years is $931.37 per month for ten years
Take your home equity loan and ad an annual lump sum payment to it of $5949.12 each year (The difference between the traditional loan and the equity loan payment $931.37 - $435.61 = 495.76 x 12 annual monthly payments) and you are able to pay down that principle without accruing interest and having to pay interest on that principle ever. That is $59,491.12 that you will never have to pay principle on. So effectively you are only paying interest on $40, 508.88.
(These numbers are not exact as interest rates can fluctuate and it depends on your rate and your chosen rate of payment, this is just an example.)
Now there may be a penalty for paying out the equity loan early, and you would need to check with your mortgage broker to see if there are any annual limits etc on the mortgage you have chosen. That said the penalty would be minimal compared to the savings in interest.
So if you own your home and your kids are off to Post Secondary this year or in the foreseeable future you may want to consider your equity in your home as a viable option to securing their future. Who knows, you may need to go live with them one day and you need to make sure they have the means to take care of you.
