Question: I have a question about what term to refinance for given that I have a child that will enter college in about 15 years. If I refinance for a 15 year term the house will be paid off when she enters college. I assume this will affect the level of student aid she could get if her parents don't carry a mortgage. Would it be better to refinance for a 20 year or longer term even if the interest rate on the loan would be a little higher so that she might get a better aid package when entering college? Dan, Bolton, MA
Answer: I would do what's best for your household's bottom line. I would refinance into a 15 year mortgage if that's the right choice for you based on its own merits.
For one thing, the federal financial aid formula for expected family contribution does not count home equity as part of parental assets. However, a number of private universities have their own additional financial aid formula and it can include home equity. In other words, whether your home affects the degree of financial aid or not partly depends on what college or university your child attends.
For another, who really knows what the financial aid system will look like in 15 years? The degree of dissatisfaction with the current system is high. The cost of college keeps spiraling higher and, at the same time, there's widespread recognition that financial aid relies too much on loans. What's more, it has been well-documented that the complexity of the federal financial aid formula is a deterrent to students from low-income familes applying for college. My guess--my hope--is that the system for paying for college will changed over the next 15 years. Even if that hope is dashed, I would still refinance into a 15 year mortgage if that the right money move for your family.