When you raid home equity for college

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Q. I’ve used $55,000 of a $100,000 home equity line of credit to pay for college. My draw period is ending so I would have to have the $55,000 as a loan. Can I somehow transfer that amount to a new credit line, or is there a better way to finance the money?
— Paying and paying

A. Home equity can be a low-cost way to pay for college.

You’ll need to talk to your bank to see your options.

Every bank is somewhat different in how they handle their equity lines, said Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield.

In general, home equity lines have a draw down period and they also have period at which time they must be paid or termed out to a conventional loan with a fixed monthly payment at a fixed interest rate. These two dates are not always the same, he said.

“Converting this debt to a fixed loan may not be a bad idea at this time, depending on the terms,” Gallo said.

Another option would be to pay the debt in full by using the proceeds from a new loan, however, getting another bank to give you another home equity line while you still have this one open may not be an easy task, Gallo said.

You could also refinance your home, combining your first mortgage and your equity line into one new loan payable over a new 30-year period.

“Whether or not this makes sense would depend on many factors such as the current interest rate on your first mortgage, the total debt outstanding and the period left on the first mortgage just to name a few,” Gallo said. “This option also assumes you are in a situation that will allow you to qualify for the refinance.”

It’s time to sit down with your friendly neighborhood banker to see what options are available.

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.