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College Student Mortgage

There are opportunities in today's market for parents to assist their children in owning a home while going to college versus paying rent or boarding costs for 4 to 5 years.  Imagine what a home's value would be after 4-5 years in both home appreciation and equity building.  In addition, rent and boarding Costs are not tax deductible.

For example, let's assume a meager 4% in annual home appreciation and a purchase price of $250,000.
At the end of year one, the home would be worth:                            $260,000
At the end of year two, the home would be worth:                             $270,400
At the end of year three, the home's value would be worth:            $281,216
At the end of year four, the home's value would be worth:              $292,464
At the end of year five, the home's value would be worth:               $304,162

In addition, you can be paying towards the loan balance over the 4 to 5 years building more equity in the home.  For example sake, let's assume a 7% mortgage interest rate* where the borrower is paying towards both principal and interest and a loan program where the interest is fixed for 5 years...

At the end of year four, your mortgage balance would be $238,686 and at the end of year five $235,329.  At the end of year five in this equation, the home's value would be estimated at $304,162 and the loan balance would be $235,329.  You can do the rest of the math to see that a real estate investment is a much better use of money that would otherwise be spent on rent or boarding costs.

This equation does not even cosider the effects of after tax savings due to the tax deductibility of mortgage interest.  The home owner could also rent to roommates to minimize their monthly input.  

*This is not a rate quote nor a guarantee of an interest rate.  This is used for example purposes only.

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