I am Currently Unemployed
House note remaining $134,000 = $3,300 per month at 5.375% interest rate
$74,000 in an IRA – losing money fast!
$55,000 Emergency funds
Should we take the IRA and emergency funds to pay off remaining $134,000 on house which will free up the $3,300 per month (of course taxes and insurance will still have to be paid)
Principal and Interest per month is $1,900.
Taxes and Insurance on house approximately $18,000 per year
We have additional monies in 401K’s that will not be touched until retirement
•Should we pay off the house, which will leave us without emergency funds and one 401K?
•Should we invest these monies in an annuity which will pay 10% upon entering, but will be tied up for 10 years? Guarantees 8%
•Should we refinance the house to lower the monthly payment and when I get a job, pay off as quickly as possible (but if I don’t get a job, have a more manageable note)?
Husband is of retirement age, so no penalties, just the interest will have to be paid if we use the IRA.
My fear is that if I don’t get a job soon and we deplete our emergency funds that we will not be able to make ends meet for the remaining years on the house note.
What to do? Funds are disappearing fast!
Fred
May 16, 2010 at 12:20 am
I’d take the $55,000 and got to Vegas and invest it. You could solve all your cash flow problems in one night and have a nice vacation at the same time.
Not I
May 16, 2010 at 12:35 am
Refinance to a 30 yr mortgage. Your monthly payment includes property taxes and insurance, Those do not change
Between your ira and savings you do not have enough to pay off loan
Refinance but put up more cash and lower the mortgaged amount
This still gives you breathing room having some assets available
Nipsy J
May 16, 2010 at 12:36 am
1. Stay calm and don’t make any hasty decisions.
2. You don’t want to dip into emergency funds or IRA to pay off house. The emergency funds are for an emergency…living expenses while you are unemployed to carry you through until you can find another job.
3. If you use the IRA and emergency fund money, then what are you going to live on? Your mortgage note payments are $1900 but you still have the $1500 a month in taxes+ insurance. You really aren’t freeing up (saving) $1900 a montrh, only the interest. In my book, the principal amount is better in your hands than in the lender’s hands.
4. A mortgage at 5 3/8% is really a fabulous rate. This is at historic lows – you aren’t going to find a better deal by refinancing considering the out of pocket expenses to do a refinance.
5. Do not tie your money up in an annuity. There are very, very few annuities which are good for purchasers and they exist primarily to provide paydays to those who sell them, being loaded with commissions, and lots of fees especially in the early years. If you ever need to get the money out there could be extremely hefty fees involved. Nobody should purchase an annuity without fully understanding the terms and conditions and every word of the fine print, and how much the firm/salesperson will make off your funding of the annuity. Again, probably for 90% (or more) of the people out there, annuities do not make sense and will not pay off for them. You’ll do better in a money market account or CDs and retain full control of your money.
6. If the money is dwindling fast, sit down immediately and write down where it all goes and chop non-essentials with a hatchet. Get rid of the cellphone (or get rid of your house landline) review home/auto/life/health insurance policis and cut non-essential/over coverages. Kill your cable or satellite TV – things are ramping up quickly online and with your intenet connection you can hook your TV up and get tons of stuff – it’s all out there.
Bottom line:
1. You have a good mortgage, it is not worth it to pay it off – not now at least, you do not have a financial safety net to allow doing it – not without a job (or a rich relative).
2. Find another job, stay at it a few months until you are secure in it, then maybe consider paying off the morgage.
3. Look for other ways to reduce your monhly expenses.
4. An emergency fund is to tie you over in an emeregency. Paying off your mortgage is not an emergency. Nobody is ever going to lend you money at the rate your mortgage lender is. You should be happy to have money lent to you at 5 3/8%.
Good luck.