DEAR BRUCE: I have questions regarding what would be best for my spouse and me to keep afloat in this tough economy. I'm 46 and not working, but thinking about going back to school. My husband makes $14 an hour working 10-hour days, four days a week.
We bought our house in 2008 for $145,000 with $38,000 down, which I paid. He put down $3,000 for the paperwork, etc. We now owe a little over $108,000 and are paying $905.08 a month. According to a new disclosure statement, our monthly payment is being lowered to $896.49 a month in February.
I have almost $1,900 in savings, and my husband lives paycheck to paycheck. I'm trying to sell items not needed, but to no avail. I'm thinking it would be smart to try and "unload" the house and move in with my 81-year-old mother, whose house is paid for. My husband is getting weak from cancer and might not be able to work much longer.
I'm trying to make the right decision, but now that my father is deceased, I look to you for wisdom and advice. I have heard of ways to get your mortgage lowered without paying the $3,000 to $5,000 in fees. Is this possible? The company that has my mortgage has no type of help process. They just want you to tell them if you can't make payments, and then they give you so many days to get out of the home.
Also, what do you think about having an auction house come in and auction items to liquidate them fast? What would be a way to unload the house to where I could make up for monies lost and still keep my high score for credit?
I'm becoming a nervous wreck because of the responsibilities that I have. Thank you for your valuable information. -- Struggling in Montana
DEAR STRUGGLING: You're not working, and you're thinking about going back to school. You didn't indicate how much you have been able to earn in the past, and this is a variable to be considered. Given that your husband has cancer and likely will not be able to keep working much longer, the first thing I think you should do is to get on a payroll and proceed from there. While going to school may be a wonderful plan, right now it should probably be on the back burner.
Second, you mentioned moving in with your 81-year-old mother. How does your mother feel about that idea? If your mom would like you to move in and you can help with her housework, that's terrific. On the other hand, maybe she would like to maintain her independence.
Assuming that the former is the case, you will need to sell your house. I wouldn't try to sell it just to get out from under it. It seems that you must have some equity there; why act in haste and dissipate that equity?
DEAR BRUCE: I don't know if I am doing this right, so I thought I'd ask the expert. My husband and I want to pay off our mortgage in four years. We owe $154,000 on our house, which cost $400,000. We save half of our paychecks each week. For the next four years I'm paying an extra $100 a month to pay off the principal. At the end of four years, I will use our emergency fund of $114,000 to pay off the balance of the mortgage.
Am I doing it right? My husband is 53 years old (young) ha!!!! -- Maria
DEAR MARIA: Paying off the mortgage may be a good idea, depending on your interest rate. If you are able to get a low-interest mortgage -- somewhere around 3.5 percent -- paying off the mortgage may not be the wisest thing. It's better to have that money invested in sound companies that are paying dividends, which would more than likely give you a larger net amount of money at the end of each month.
What you're talking about here is what is called a compensating balance. Assuming that you have the money to pay off the mortgage, it really doesn't make any difference whether you pay off the mortgage or have the money invested elsewhere and owe the money on the mortgage. One washes the other.
I have no problem with making an extra payment toward the principal each month, but I'm not sure you can make a decision now on what to do in four years. When it comes to the money in your emergency fund, whether it pays to reduce the mortgage is difficult to forecast.
On balance, and if things remain as they are, I would consider investing the money and maintaining the modest mortgage payments.
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