A friend of mine has a problem and hopes someone in the same situation or has any ideas could help him. They have two children, 16 years old (junior year) and 13 years old (8th grade). He pays a monthly mortgage of $1098 and he has $120,000 left to pay. He has saved $102,000 in 529 plan for college fees. Together with his wife they contribute $500 to this savings every month. He has saved $401,000 of expenses for emergency. He has two options, to either pay $1000 for mortgage and complete it by the time the 13 year old is going to college (2021), or save the $1000 to the 529 plan for future college fees. He is weighing to see which option is better. What's your advice to him?
Well generally you would look at the net value gained by each as best as is can be estimated. (Interest earned and paid, whether the property is rising or sinking in value etc). But in this case it is moot. The very first think to do is find out how much money the will need to pay education costs. That is, when the kids graduate, total cost of college attendance, date money will be needed. The money paid in needs to be enough to cover that minus any amount that they can pay out of pocket. Paying off the house achieves very little of you have to remortgage it within 5 years to pay the school fees. The fees for remortgaging would be a total loss and the interest rates offered then are most likely to be higher than what he has now.
