03 Jun Should I refinance my home after paying college bills?

Q. I used my home equity line of credit (HELOC) to pay for my son’s college. It has a $100,000 limit and I’ve used $85,000. I can handle the monthly payments but I’m wondering if it’s better to refinance so I only have one loan on my home. What is better?
— Paying it off

A. Lots of families use their home equity to pay college bills.

We’re glad to see you’re trying to best manage your debt, but there’s no one right answer here.

“This decision should depend on the current interest rate you are paying on both your primary mortgage and also the home equity line of credit,” said Michael Cocco, a certified financial planner with Beacon Wealth Partners/AXA Advisors in Nutley. “Also, you would need to find out the potential interest rate if you did a full refinance and combined both loans.”

At the current time, mortgage rates have fallen steeply over the last year, so it may be an opportune time to refinance into one primary mortgage, Cocco said.

But there are a few items to consider.

First, doing a complete refinance into one primary mortgage will also have additional closing costs that need to be factored into your decision, Cocco said.

Also, once you refinance into one primary mortgage, you are locked into a payment. With many HELOCs, you have the option to pay interest only temporarily if cash flow changes and becomes tighter.

You didn’t say if you anticipate more college bills – or other expenses – in the future.

“If you may need to access more equity from your home, closing the HELOC by refinancing all into a primary mortgage may limit your ability to access future home equity easily,” Cocco said.

Remember that under the new tax code, home equity lines of credit interest is no longer tax deductible in many situations, but if you did a complete refinance into one primary mortgage, all of that interest may be tax deductible to you, Cocco said.

Before you make any moves, speak to your tax professional about the tax deductibility of interest on these loans.

Email your questions to .

This story was originally published on June 3, 2019.

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.