Jewish World Review Dec. 28, 2000 / 2 Teves, 5761
Paying off a mortgage; Borrow yourself to prosperity?
DEAR BRUCE: I have an IRA with about $72,000 from which I have been making house payments. I have about $80,000 in mutual funds, which approximates my mortgage on my home. I want to know if I should pay off my house -- I'm afraid that the market will go down and I will not have enough money to make the payments. -- P.J., Va.
DEAR P.J.: Once again, I don't have a crystal ball. You haven't indicated your age, but if you are of retirement age there is a certain value in having a mortgage-free home. Purely from a financial point of view, however, it seldom is the best way to go. But if you are in your 60s and would like to have the comfort level of having a home paid off, I have no problem; sell your mutual funds and retire the mortgage.
DEAR BRUCE: I'm working full time as an LPN with an annual income of about $20,000 after taxes, and I am 28 years old and still a student. My credit is in great shape, but I owe $20,000 on five different cards. I simply can't get ahead by paying the monthly minimum. The interest rates run from 7 percent to 12 percent. I can't afford to pay more right now, and I will not consider bankruptcy. I am responsible and I plan to take care of my debts. What is the fastest way for me to become debt-free? Should I get a loan and consolidate the credit cards? -- J.J., Sarasota, Fla.
DEAR J.J.: Unfortunately you can't borrow yourself to prosperity. You owe an entire year's take-home pay, which is an extraordinary amount of debt. The only way I know to retire that debt is to increase your income. That means you will have to find some part-time work.
Given the fact that you are working full time and going to school, you will have to wait until you have completed your studies. I realize that this is going to put a great strain on you, but you got yourself into this, and you are going to have to dig yourself out. The only way to do that is to increase your income and pay every dime on your debt. Making minimum payments alone will take you half a lifetime to get out from under.
DEAR BRUCE: Our mortgage has a variable interest rate of 9-1/4 percent with a balance of $61,000. We have $165,000 in savings, which is earning between 5-1/2 percent and 6 percent. Should we keep the mortgage and try to invest the money into something that will pay more? My husband is 76 and I am 65. His $2,300 a month retirement income dies with him. -- B.T., via e-mail
DEAR B.T.: If your savings are only earning 5-1/2 percent and you're paying 9-1/4 percent, it's a no-brainer. Pay off your mortgage. At your age I would be more comfortable having the home paid off. You will have to start thinking about stashing away as much as you can of the pension, given the fact that your husband is considerably older than you are; since you are a female, you most likely will live a lot longer. You will have a very difficult time once he is no longer in the
Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).
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