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Author: 3110Corp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8153  
Subject: refinance mortgage to buy prepaid tuition? Date: 1/28/2001 8:47 PM
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Help I need advice! Should we refinance our mortgage to pay for prepaid college tuition for our 4 children?

The facts: 4 children entering college in the next 4 to 10 years. Only college savings we currently have is custodial accounts for the older 2 kids funded by grandparents

House is worth $150k. Current mortgage is @7% - due to be paid off in 5 years. (Orginal amount borrowed was only $41,000). We plan to stay in this house for the next 15 years -- until all the kids are through school.

IS this a good plan?
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Author: 3110Corp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3398 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/28/2001 9:11 PM
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More info you may need: We would buy 8 semesters for each child (about $18,000 each). Total refinance would be for about $106,000. We have no other debt and enough savings that we were about to start investing. I think our monthly payment would go from $400 to $700+. It could be mananged on our budget, but would cut into the amount of savings we put aside.

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Author: RiverCityFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3399 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/29/2001 12:44 AM
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I'd be leery of refinancing -- I don't think you can do better than a 7% rate right now.

Since you say you could manage going from a $400 to $700 payment, why not start putting the extra $300 into saving for college, through Roth IRA, 529, EIRA, etc.?

If your kids work, get them started with Roth IRAs and with other saving/investment for college.

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Author: EricMorton One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3400 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/29/2001 8:49 AM
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Do you imagine that you will qualify for financial aid? If so, then be cautious about refinancing now and all of a sudden have an extra $106,000 in assets that wouldn't have been counted before.

My advice would be to wait at least. Pay what you can and maybe get a line of credit on the house or normal education loans. Refinance later if you really want to consolidate.

Eric

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Author: mrsbob One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3403 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/29/2001 2:43 PM
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With four children, there's really no telling if all four will go 8 semesters within 4 years of HS graduation. It's a pretty good guess you'll need your house during that time. Thus, I would say paying for your home is reasonable. One of your children may go to college, one may fall on ill health, one may join the circus. You want to "be there" for them financially as much as you can,regardless of their needs.

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Author: WorkingMomOfTwo Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3407 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/30/2001 12:51 AM
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I agree with RiverCityFool but would go one step further...
* Save the $300/month for the next 5 years (until the
house is paid off)
* Save the FULL $700/month after the house is paid off

ALSO....whenever you get a raise, look to see whether you can save part (say 50%) of it for college. So if you get a $200/month raise, see if you can save another $75-$100/month for college and only increase your budget by the difference.

This is the 2 prong strategy that I am using to find money to save (currently at $455/month) with my children entering college in 2012 & 2014.
* When I get a raise, save 50-75% of it for college.
So far, I am saving $300/month from raises.
* When the daycare costs go down, put the money into
the college accounts. So far, I am saving
$155/month as of September 2000 from daycare savings
and expect to save another $155/month when my
youngest moves from 1/2 day kindergarten to full day
1st grade.



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Author: EricMorton One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3410 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/30/2001 7:34 AM
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ALSO....whenever you get a raise, look to see whether you can save part (say 50%) of it for college. So if you get a $200/month raise, see if you can save another $75-$100/month for college and only increase your budget by the difference.

But given that your added taxes of the raise will cut out a good chunk of this (~40% depending on state), then how do you manage to increase your budget at all :-)

Eric

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Author: WorkingMomOfTwo Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3415 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/31/2001 12:40 AM
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You asked:
But given that your added taxes of the raise will cut out a good chunk of this (~40% depending on state), then how do you manage to increase your budget at all :-)

My response:
The 50% is AFTER taxes are taken out. What ends up happening is something like:
35% of raise...taxes

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Author: WorkingMomOfTwo Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3416 of 8153
Subject: Re: refinance mortgage to buy prepaid tuition? Date: 1/31/2001 12:51 AM
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Let me try that again and then head to bed:

You asked:
But given that your added taxes of the raise will cut out a good chunk of this (~40% depending on state), then how do you manage to increase your budget at all :-)

My response:
The 50% is AFTER taxes are taken out. What ends up happening is something like:
36% of raise...taxes
32% of raise...increase budget
32% of raise...college increase

So, a $210/month increase ends up with about $70/month per category. The other thing to remember is ANY increase from a raise that you can afford is worth it (even $25/month)...especially when you have 10-12 years
to save ($25/month x 12 months x 10 years = 3000 PLUS
investment gains).


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