Using Your Home to Pay for Childcare or Education: Is a HELOC the Way to Go?
A wise man once said, “If you have to choose, save more money for retirement than your kids’ education because no one will lend you money to quit work and die.” There’s a lot of truth there. Thanks, Dad.
A wise and desperate mother once said, “Babysitters seem really expensive, but it’s a finite expense. The kids grow up quicker than you think. Pay for it however you can, even if you have to use home equity. You can pay it off when they go to first grade.” My sister-in-law is pretty smart, too.
HELOC Could Pay the Babysitter
In a way, they both had the same idea. Paying down your mortgage and raising the amount of equity you have in your home gives you a valuable source of cash if you need it. Many parents consider using a home equity line of credit (HELOC) to pay for some of the expenses of parenthood. Childcare is a great investment because you can’t further your career and increase your income without it.
Though it may seem that babysitters are eating up your cash, taking a break from work can mean forgoing the regular increase in salary that comes with regular employment and remaining current in your field. Spending on sitters now could lead to more income later.
But what if one of you has decided to leave the workforce, temporarily, permanently, or in shifts, as some families are choosing now, to care for your child or children? Why pay for childcare when someone -- you or your partner -- can watch the kids for free?
You do it for your sanity and your relationship. Childcare isn’t free if it leads to fighting, a miserable parent, or even divorce. Every adult needs a break, whether it’s to attend a work-related conference to keep your foot in the door, or just to hit happy hour once a week and reconnect with another adult.
Or the Kid's College Degree
As your kid grows older, and childcare gets less expensive, work on building your equity, because it may come in handy when it’s time for that kid to start leaving the nest (aka go to the halfway house many of us refer to as “college”). Though it isn’t always possible to finance all of a child’s education, most parents want to at least help.
A HELOC can supplement other loans or cash you’re using to pay for college. The interest rate is generally lower than other loans and, unlike a student loan, you only use what you need.
A HELOC is there if you choose to use it. And in some cases, the interest you pay on a HELOC may be deductible on your taxes (up to $100,000), but look before you leap, and ask a qualified professional if this is a possibility for you.
Just Be Sure to Rebuild the Equity
The downside to a HELOC, of course, is that you will have to rebuild equity in your home. But it’s a good resource to have at the ready. And if your kid gets a scholarship and you’re off the hook? Oh, the places you’ll go! The equity you’ve built in your home could help finance your dreams.