In Wondering About Pre-Paying a Mortgage Versus Investing I talked about my past disposition towards pre-paying a mortgage over investing but how my view might be changing. A thought-provoking comment was left on that post as follows:
Something to chalk up to pro-prepaying a mortgage that I don't see mentioned as often on PF blogs as it should is that if you have kids in college, the equity in your primary residence does not count toward your FAFSA basis for need-based scholarships and grants. Nonetheless, it does matter for many private schools. So, I could see primarily investing in a mortgage pre-payment if you had a kid going to school and you thought it might make the difference in their getting some grants and such.
A good point, but for us I doubt we'll qualify for any need-based scholarships or grants. That said, for people who do qualify for such options, pre-paying a mortgage might be a better option. Then again, if you're qualifying based on need, isn't it likely that you won't have much extra left over to make additional mortgage payments?
I've never heard the impact of home equity as it relates to financial aid. I guess my kids are only 6 years old so I haven't done any aid based calcuations yet, but I probably should consider it since decisions today will impact us 12 years from now.
For the most part, I only recommend paying down your mortgage if you already have other signifant retirement assets. You don't want all your eggs in one basket, so to speak. If you home equity is a nice proportion of you overall net worth and not overly weight, go for it and pay that mortgage down.
Tim
Posted by: Tim@DailyMoneyTips | February 22, 2008 at 01:22 PM
Where we're seeing this potentially come into play is where you have relatively low income but decent assets. In our case, we're currently serving in nonprofit work with a fairly low income but have comparatively large assets from a previous career. We're not yet into the FAFSA thing with a child who is just a junior this year, but are on the edge trying to decide how to best manage this last year before we do file FAFSA. Move some cash out of the money market fund, sure. But do we put it into our house or into IRAs? We'll likley need some of that money to pay for college, but would like to have it not count too much against us as assets.
Posted by: Scott | February 22, 2008 at 02:01 PM
I have written many times that paying off one's mortgage can actually cost them more in the long run. As for the argument here that the mortgage prohibits financial aid, my point would be that you wouldn't need financial aid if you planned accordingly, got home you could "afford", and invested properly. Your last statement is right on target as well.
Posted by: Robert D. Ashby | February 22, 2008 at 02:01 PM
Sorry, I meant home eqiuty instead of mortgage in relation to qualifying for financial aid. My typing doesn't run as fast as my mind sometimes.
Posted by: Robert D. Ashby | February 22, 2008 at 02:02 PM
Just curious, how do you feel about an article written by Scott Burns about the benefits of paying off your mortgage?
www.dallasnews.com/s/dws/bus/scottburns/columns/archives/1999/9907/11SU.htm
Posted by: Robert Dinero | February 24, 2008 at 06:55 PM
There's nothing at that link but an error.
Posted by: FMF | February 25, 2008 at 07:54 AM
I believe there is a point where you would still be eligible for some need-based financial aid where you could still have enough money to sock into investments. I am not exactly certain how large of an income range that is though. It is something to think about though I believe nonetheless.
Posted by: Brandon | February 25, 2008 at 09:22 AM