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On strategy is to use all funds available on your mortgage. Home equity is not considered in the FAFSA, although some schools do consider it. This is why I currently place paying of a home above saving for college.

If you did have an emergency and had a far bit of equity in your home, you could get second or line of credit to cover the emergency.

Another way is to make prepayments, note this is not the same as prepaying principle, in that it does not save you interest as much interest, but it does move your due date for the next payment out. Thus for small hiccups you just stop paying the mortgage for a few months and use those funds to meet the emergency.

However, I am not sure that I will do either as the first option assumes that you can get a second mortgage if you need it and the second really only works if the biggest emergency you might have is equivalent to 1-2 of your mortgage payments.

As for gaming thee system. The system is what it is, following the rules laid out is hardly cheating. Giving your aunt Sally a bag of $100 to hold for you and never reporting it on the other hand....
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