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Efforts to increase financial aid can cloud the big picture

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Q: I have a $125,000, 30-year mortgage with a fixed rate of 6.125 percent. My son will start college in 2013. I wish to have my mortgage paid off by the time I retire in 2019. I also have a home equity line of credit of $22,000, which I hope to pay off by July 2009, after which I can contribute $1,500 per month to 529 accounts for my kids. I can tap into mutual-fund accounts for about $60,000 after capital-gains taxes. If I use that to pay down my mortgage in September 2008, then I can have my mortgage paid off by July 2017. In addition, I have been told that by cashing in my mutual-fund accounts, I will have fewer assets that will be used in the federal student loan application to calculate my portion of the college costs. Is this a viable strategy?

J.G.K, via e-mail

A: Kyle Meyer, a financial planner in Lincoln, Va., would want a more comprehensive look at your financial situation before recommending that you pay off your mortgage. But Mr. Meyer, a registered investment adviser with the National Association of Personal Financial Advisors, says that he definitely would not do this for college financial aid reasons.

"It's a long time until 2013," he says, "and the strategy you mention may not work as well for a private school that may take into account factors that a public institution would not."

"What happens if the child gets accepted to the Massachusetts Institute of Technology or another elite school?" asks Meyer.

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