Save for College or Pay off House Sooner?

Get the shorter home loan. The kids can help pay for their own college. They will appreciate it more when they are helping to provide it.

$120/mo for college? I hope that you are not planning for them to start until they are around 110 years old! In 13 years you will probably not even have enough for one semester-maybe you could pay down the loan, lose the tax write off, but take out the equity to send one child to school and once again , have a mortgage.

It's all about the interest rate. If you have a really low rate, like 4-5% it's better to save for college and invest any other savings after emergency fairly aggressively.

Why pay down a loan with great rates when you could put that extra cash somewhere to compound? You can always pay it down later with what you've saved/made if the goal is to get rid of that monthly payment. Cash is king.

Pay on the mortgage, especially in this economy.

Here's why....
Chances are the interest rate on your mortgage is higher the interest rate your earning on the college savings.

Are you positive that your child will be going to college? Maybe life will take them in a different direction.

If you build up equity in your home, when college time comes along, you'll have the option of taking out a home equity loan or line of credit on your home to help with college costs.

J., the best thing that you and your husband can do is to sit down with a tax accountant and work through this issue "by the numbers". You lose the most valuable deduction that you have if you pay off the mortgage, and what you need to see is how much taxes you have to pay based on your husband's income. Until they change what point you hit Alternative Minimum Tax (AMT), you both will most likely hit that nasty bump in the road if you pay off your mortgage. Your accountant can show you at what point HAVING a mortgage can actually be "free" for you (as opposed to having to pay taxes.) Most people, once they understand this about their tax circumstances, would rather pay that on their house than pay it to the IRS. I know how this goes because it pertains to us.

I would highly recommend you get this counseling from the accountant FIRST, rather than from a financial counselor. Once you've made a decision on that and have a "blueprint" from the accountant, you might want to go to a financial advisor to decide on appropriate investment vehicles for college savings.

Good luck!

It really boils down to :What is the interest rate on your mortgage vs What kind of rate of return you will get on the account you are saving for college.

If you are just going to put the money into a bank account and not invest it, or you have a high interest mortgage then pay off the house.

If the interest on the house is low (less than 5%) and you are opening a college savings plan, save for college.

We have a 4-year plan to pay off our mortgage, starting next Summer (after my last student loan is paid off).

Absolutely pay extra on your mortgage. Look at your amortization schedule (you can get a copy from your bank). The extra money you pay towards the principal significantly reduces the cost of your mortgage. We're talking tens or even hundreds of thousands of dollars saved, depending upon the cost of your home and how seriously you apply money toward the principal.

The money you save by paying off your mortgage sooner is money you will actually have if you want to pay for your kids' college.

I'm an oddball. I believe that if you bring a child into the world you support that child throughout funding his/her college education. It's my job as a parent to get my child out of college debt free.

Why on earth would I send a newly educated child into the job force with loads of debt which only holds that child back? Think BO here and his thoughts which are scary as Halloween!!!

Of course retirement is a priority. We started retirement planning years ago before daughter was born and before our daughter was born we started funding her education. We've been very responsible and I resent funding ppl who want to grab on coat tails and do nothing but get a benefit. I go above board to make sure my funds are not compromised to fund the lazy ppl.

Many ppl say kids don't appreciate it... Well some do. I know as a business owner and my daughter as a partner she appreciates what we are doing because she understands funding for education and retirement. She also understands owning a business and what it involves which means watching out for those who want handouts or something for nothing. Our family evolves in work ethics, higher education and entrepreneurship. Higher education is not an option in our family of entrepreneurs.

As an employee daughter is fortunate to have a retirement fund already set up for her and as a child of mine she has her education paid for as well. She will contribute to her graduate degree but for the most part .,, she's good to go for 4+ years of education. I will not put my child in debt.

Debt is evil.

We manage our company and finances well and we don't rely on any government programs. We believe in working for what you receive. So far ... Very rewarding and profitable to have no boss or someone telling us how to run our company.

So decide what's best for your family. Keep in mind, if you pay off your mortgage, you still have expenses to uphold a good stable home. There's much to consider.

Hopefully you have a financial counselor who can help you navigate between all the emotional and real decisions you have to make.

Best wishes!

If you don't have a mortgage payment, might you be able to pay cash for college?

Pay off the mortgage first. Be done with that payment, and college will be so much more manageable.

Mortgage.
Then you should really be able to chunk out college.

We paid off the house first. It worked for us. We put a little into a college fund, but pushed to pay off our mortgage. Our mortgage was paid off by the second year our first child was a sophomore in college. We were immediately freed up to pay for college. We figured if things got too tough our kids could go to school locally and live at home. That didn't happen. All worked out, but it has been an amazing feeling of security to outright own our home.

We need more info. How old are your kids and how many kids do you have? How much money per month do you have to allocate toward either the mortgage or the college account? How many years will it take to pay off the mortgage if you put all of the extra money toward that?

I'd be inclined to say put the money toward college. Yes, you lose a fortune in interest on the house. But, if you pay down the house, you still don't have anything to pay for college. Unless your house will be fully paid for by the time your oldest is about 8 years old (giving you 10 years to save for college), I wouldn't put everything toward the mortgage.

I think it depends somewhat on how old you are when the kids go to college and your mortgage rate... Older parents who don't have many more working years probably should focus on the mortgage. Young parents who have another 20+ years to work don't need to and I'd say should try to help with college. Interest rates are another factor. A coworker told me his rate is something like 2.5%. After taxes depending on your bracket, it could be a ~1.5% interest rate. That's really really cheap money and no hurry to repay that. Nowadays, college is expensive yet all the more important for people to have a shot at making a decent living so I think parents really should pay for as much as possible. THere are only so many scholarships and grants to go around. I feel it's my duty as a parent to help. My parents weren't rich but sacrificed to save and pay. I am forever grateful. Putting money in a 529 grows tax free versus potentially very low interest rate on your mortgage. So I would likely go with a combination. Steadily paying down your mortgage yet also saving some for college. And again, depends on your age and mortgage interest rate.

Suzanne probably has it right. There are no scholarships for retirement.
It's crazy how much college costs. We have always put down more on the principal every month and we will pay it off much sooner. But if we had paid it off, that would still be very close to not paying for college in monthly savings. There would still be thousands every yr in taxes and insurance.
If you had two in college at the same time, it wouldn't come close unless they had scholarships or work study or went to a more inexpensive college or community college for a couple yrs.

We had a tomorrow fund(now defunct) that we paid on for 10 yrs for one and 6 yrs for the other. They held the tuition rate to the yr we paid for it.
College tuition in my state went up 20 percent in that 10 yrs.
We made 20 percent on that money. We still had to pay fees and housing.
If you were going to start saving now for college, may I suggest $2-$3,000 a yr? Per kid. That would give you a good start. Is your mortgage that much?i don't want to discourage you but I want you to be realistic.

The one of the greatest gifts a parent gives a child is that they can fund their own retirement. It makes relationships so much simpler.

Mortgage.
Nobody knows what college will cost or how you'll pay for it in the future...it's just too unknown.

I'd get rid of the debt first.

I would work on my retirement fund. Then I would work on my mortgage and a rainy day fund. The last thing would be college. There are grants and scholarships for them. You can help them but you don't have to fund them completely for higher education.

Congrats that you have almost paid your student loans off.

the other S.

Hi J.,

I am a financial planner. I am making some assumptions here: First, I am assuming that your mortgage has been refinanced so that you are at historically low rates. Second, I am assuming that you and your partner each have retirement accounts and you are contributing to them. Third, I am assuming that you already have an emergency cash cushion of at least 6-9 months so that if you should lose a job you are temporarily okay.

After making the above assumptions, my approach (without having a conversation about your values and complete financial picture) would be to pay off your student loans as quickly as you can as the interest rate on those should be higher than your mortgage (again - assumption # 1). After that, have college savings but not a 529 plan per child. One that can roll to other children if child # 1 decides not to go to college or makes other plans.
The college savings should not be instead of retirement!! Retirement comes first.

Since your mortgage should be at a low interest rate - it would be considered a "good loan" - plus at least today your interest is deductible. Any loans you might take out for college will be at a higher interest rate than a home mortgage - historically speaking.

Oh, and even though this is not your question. Why would you want a bigger home? If you are done having children, and your family will eventually be shrinking instead of enlarging, and you are happy in your home consider that most couples plan to down-size as their children move out. Energy costs and insurance costs only go up as you increase your square footage. Also, if you did manage to refinance at or below 4% you will find that those rates are few and far between now so your larger house will be at a much higher rate and not just because of a 15 vs 30 year mortgage.

Good luck! C.

We do not believe in paying for our children's higher education, so we would pay off the mortgage.
We have told them we would pay for books and since we live in an area with 5+ colleges (including two state schools), they can live here free of charge while in school. Also, not all of our kids will go to college. We fully expect at least two of them to enter into a trade and they can easily live at home while they train and go to school for that.

"College funds" were considered to be only for the wealthy with additional disposable income in my generation, not an automatic requirement for having children. The responsibility for a higher education was placed firmly on the child's shoulders. It taught an important work ethic, no one handed me my education on a plate.

We are not planning to pay for our kids' college...and they know that. We are both graduates from great California Universities and we paid for it all ourselves. We worked, got grants and loans.

Our income is aggressively going towards paying off our home early and also into our diversified retirement investments...not to mention also into raising our kids while minors living in our home.

Our kids know that college is very important if they want to secure their financial and employment hopes and dreams. All three of our kids have a desire to go to college and have picked the Universities they want to attend.

I am in the camp where my kids will have to pay for college. My husband enlisted at 17 (almost 18) and I am paying $600 per month for my undergrad and graduate degrees now. I can't save for theirs while I am paying mine off. I will still be paying mine when my oldest is 20 (she is 10 and my loans started only a few months before she turned 10). If I can pay them off sooner, I plan to do that, but they will need to get loans, grants, and work for their college same as I did.

I would pay off my mortgage sooner anyways. We are looking into a 15 year as well...and since retirement is first for us, that would go first.

Also, with the way the Government is right now, no jobs where we live and work are secure (we are both Government contractors). So our money goes to building our savings right now, doing a few home upgrades, and saving for some fun stuff...plus retirement.

I was kicked out of my mothers house at 15, and had no chance from the beginning. I have simply tried to survive since then. I Have gone through so many places to live, I lost count, but at least 2-3 per year. I have had a drug problem, alcohol problem, gotten in trouble with the law because of those, been in a physically abusive relationship for years, had children out of wedlock, lived in homeless shelters with my children, and basically threw out whatever chance I had of a bright future before I was 18.

Now that I have finally gotten out of an abusive relationship, set goals for myself, and have to be the sole supporter of 2 kids under 5, I am learning the importance of a college education.

I think they are all equally important things to save for. Split them all equally

I wouldn't pay on the mortgage. You have no clue what will happen in the future and you even say yourself you won't stay in that home.

If you couldn't pay next month for some reason, they will call you for the payment and the late fee. Try telling them you have paid in advance.

The only time I would pay my mortgage early is if I had nothing else to do with my money or I had every penny to make the payoff.

Do you have other sizeable write offs, once you pay off the mortgage?

If you have to prioritize, then mortgage before college. If you can afford to, I'd be splitting both. It depends on your college savings goals, though. We want to fully fund college and not leave our kids saddled with debt, so we bank quite a bit (while making retirement a priority, too).

I would pay off the house, just think of the money you would save in interest alone.

Mortgage.

I know so many people are determined that their children will begin their adult lives with no debt, and they vow that they will pay for their child's education. If they can do it, great.

But statistically, most people in this country don't have enough money for their own retirements. So I don't know how most people are going to achieve this dream.

You have to take care of yourself first, and if you can save money on your mortgage interest, that money could be used for all kinds of things.

Having a paid-off home when you retire is one of the best things you can have. I know I won't have one, so I guess I'm working till I die.

p.s. Since you've already figured it out, and you will save 200K!!!, there's your answer. That will pay a lot of tuition.

Logically, I would pay off the mortgage first.
1) it is debt and costs you money the entire time you owe it.
2) When your kid goes off to college, you can borrow money (or THEY can) for college THEN. Or get scholarships.
3) It would seem to me that when applying for need based financial aid, a fat college fund would eliminate that as a funding source.

But... my kid isn't in college yet, so I don't know.
We are working on both at the same time. We have a little college nest egg, and a nice retirement nest egg, and are paying more on the mortgage than is necessary.
Might not be the most efficient way, but we aren't in a position to have the mortgage paid off in full before our 10th grader hits college, so we are still partially funding a college fund as we go.

This is what I would do. I would drop the amount I was putting into the kids college fund and pay it into whichever is the higher interest rate loan. If your student loan interest is anything like mine it's higher than the mortgage interest rate, so I would also use those 3 extra mortgage payments toward your student loan and get it gone. Then take the total amount you were paying into that student loan, plus the money you are paying to the kids college funds and put it all towards the mortgage payments. Your kids are still young you have time to catch up, and if your loans are gone you can recoup a lot. Plus it's good for them to take on some of the financial responsibility themselves if they need too.

It really depends on the interest rate. Recent rates are at probably an all time low, so you should hang on to your mortgage. If you can get a great rate, refinance from 30 to 15, for sure.

If you don't have them already, you should think about both of you opening up Roth IRA's and maxing out what you are able to deposit each year.

Your best bet is to talk to a financial planner.

My first question was about retirement savings, then I saw your update about maxing it out. I'm guessing you also have a sizable emergency fund that can carry you through 6-12 months of job loss? If not, do that next.

If so, then go ahead and knock out that mortgage assuming you intend to stay where you're living and not move anytime in the foreseeable future.

Have you considered refinancing if your interest is higher than necessary? We refinanced this summer, dropping our interest rate by almost 3% and cutting off 5 years.

We told the kids upfront that they would have to fund themselves past x amount (SS got a scholarship and SD works). So I would decide how much you want to save for them, how to save/invest and see if you can do a little of both. How much would you save by changing your mortgage amounts and would it possibly also be good for you to refi? We are doing a bit of both. We have a fund for DD that we started when she was 1 but also hope to have the house paid off in the next 10 years. I'm glad you said you were saving for yourself, too. Banking on the kids before yourself leaves a lot of parents hurting later.

House paid off. Your kids may earn scholarships, have a job, or join the military.

Like I've seen posted here many times, you can finance college; you can't finance retirement.

My dentist created college funds for each of his five children. Now that they are beginning their university education, they have been considered ineligible for many scholarships, because each has a "college fund". They all intend to enter a medical profession, so my dentist said that he may never be able to retire. We discussed this with our accountant, and he agreed that we would be better off, saving the money in an investment account, with our children as beneficiaries, rather than designating them officially as college funds. But think about it: you can save forever for college, and never know how much they will need, but you know how much it will take to finish paying off your mortgage, and there will be less of a chance that you will have to struggle with it later in an uncertain economy. You certainly don't want to deal with your mortgage as you reach retirement!

Mortgage first I think. If you CAN send in an extra payment in the middle of the billing cycle and it taken off your principle. If it doesn't work like that then no, it won't be helpful. I think it was Dr. Dobson that said if you make an extra, not with the monthly mortgage payment but a separate payment at a separate time of the month, you could pay off your house 10-15 years early.

College money is nice to have on hand but you'll have more money on hand when they're going off to college if the house is paid off. Plus, encourage the kids to get high grades and to do activities and sports where they might get scholarships.

You are amazing and well planned out. Personally after trying to live like that and having catastrophe after catastrophe I would plan to take a vacation and then figure it out!