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Q: I've been laid off for more than a year now, and I’ve been able to keep up with my bills, but the money is running out. Can I change my mortgage to a 30-year and pull out some of my equity so that I can go back to school to get a teaching degree? 

A: Yours is not an uncommon situation, given the current downturn in the economy. Changing careers is certainly an excellent approach to taking greater control of your life and your future. Before you sign up for courses to get your teaching degree, however, do a little homework: What is the status of the teaching profession in the geographic area where you would like to teach? Which disciplines are in demand? What are the compensation structures? Where are there the most openings (public, Catholic, private, charter schools)—and what are the requirements for each?

            Have you looked into teaching positions at junior colleges, community colleges or full universities (sometimes at this level, they'll hire you to teach, based solely on your work experience)? If you are currently a college graduate, in some places you simply need to get a teaching certificate to be eligible for a teaching position; in other situations, a certificate and working experience qualify you. Here’s something else to look into: at some colleges and universities, if you are able to secure a non-teaching position (administrative, cleaning staff, etc.), that job makes you eligible to take courses toward a degree, free of charge.

            You might also look into the online University of Phoenix (http://onl.uophx.edu/index.asp?deg=). We know several people who teach for this university, based on their work experience, and have found it to be very rewarding, both financially and professionally. This university also offers courses toward a Masters in Education degree, and has the flexibility of allowing you to “attend” class while working, should you be able to find work, even part-time, to help you pay your bills until you’re settled in your new career.

            Once you’ve done the above research, the question then becomes: should you use your home equity to fund the education needed to make the career switch. We’ve talked with a mortgage broker and found that there should be no problem in changing your mortgage to a 30-year from your current 15-year loan, if you are doing it with the same lending institution.  The payment should end up being about 25 to 30 percent lower than your current monthly payment.

             If you don’t have another source of income (i.e. a working spouse’s salary) coming in, there could, however, be a problem should you want to do a "cash out," or take out some of your equity in cash at the same time.  Any lender, including your current one, will want income verification to ascertain that you have the resources to make the monthly payments.  Also, be aware that you could end up not lowering your monthly mortgage payment at all if you take out additional cash. A lot depends on the interest rate that you’ll be able to secure.

                Another factor to consider is the consequence of selecting a home-equity loan with a fixed rate versus a home-equity line of credit, where the rate is adjustable. These may seem very attractive right now, when rates are at historic lows, but history also tells us that today’s low rates are bound to rise...and so will your payments.

            As another option to fund your tuition, we recommend that you look into scholarships, grants, and student loans before using the equity in your home. Once you become a student, don’t forget to take advantage of the Hope Scholarship Credit and the Lifetime Learning Credit, which will reduce your taxes while you are in school.

            Bottom line: The savings in your monthly mortgage payment, which you’ll create by increasing your mortgage period to 30 years, may be sufficient to pay for your tuition without laying your house on the line by taking out an equity loan or line of credit.  If you do secure a line of credit based on your equity, you might want to decide whether to use part of this cash to pay down any high-interest debt hanging over your head (pay-off credit cards, pay off your car, etc.) in order to increase cash flow to live on. Once you’ve paid off your credit cards, you always have them as a cushion, or fall-back position, in case of emergencies. But only use them as a last resort.

            Be very wary of putting your house on the line. If you can't make the mortgage payments, you might lose it. And a roof over your head is something you don’t want to risk losing!

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This answer was prepared by MAKING BREAD’s resident financial expert, Elizabeth Lewin, author of “Family Finance” (Dearborn Trade), and publisher Reginald Owens.

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