I own a house worth $400,000 and have $160,000 outstanding on my mortgage. Is it a good idea to refinance the mortgage at about 3% for a 15-year mortgage and cash out about $100,000 equity to pay for my kids' college? Because the interest rate is so low and mortgage interest is tax deductible, I thought this might be a good plan. I am 48 and my wife is 45. I am currently eligible to retire at a half pension and we have been saving in a 457 plan for 20-plus years. — Mark S.

At first blush, taking advantage of 3% mortgage rates to pay for your kids' college educations sounds like a good idea. After all, PLUS loans, which colleges offer directly to parents, typically carry interest rates around 8%.

But borrowing to pay for college is only a good idea if it doesn't affect your ability to save for retirement, says Matt DiVirgilio, president of DiVirgilio Financial Group in Lynn, Mass. If you can keep up your 457 contributions and make your new monthly mortgage payments at the same time, then you're in good shape. But if your retirement is underfunded, borrowing against the value of your home now could create a financial hole in retirement that's too big to recover from.

If you do decide to refinance, DiVirgilio recommends that you skip the 15-year loan in favor of a 30-year loan — but that you still plan on paying off that loan in 15 years. Reason: You'll be able to fall back on the 30-year loan's lower monthly payment if you run into financial trouble — say, from job loss or some other unexpected crisis. "Of course," adds DiVirgilio, "you first have to ask yourself if you have the discipline to stick to the 15-year plan."

-Marc Mewshaw

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