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house or invest?
■ Paying son’s
■ Out of work
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Does it make financial sense to pay off my
mortgage faster? We are in our late 30s, have
no other debts (car, credit card, etc.) and have
substantial savings. We are in a tax bracket
of 33 to 35 percent and have maxed out our
It is a 15-year mortgage at a fixed 4. 8 percent rate, with 11 years and $120,000 in principal left. Does it make financial sense to pay
down my mortgage faster or to take the money that I would put into additional principal
payments and invest it in the stock market?
large sum of money that will take many years to pay
off. That makes a HELOC way too risky.
This brings me to my next concern: Taking on
a lot of debt at this stage of your life is just so dangerous. We’re talking about $300,000.
Your son should do the borrowing. Period. He’s
going to be a doctor. Not only can that mean a high
salary, it also tends to be a recession-proof career.
He is going to have ample resources to repay his
loan. What your son really wants is for you and your
husband to be financially healthy in retirement. If
you want to help, I would limit your contributions
to what you can afford to pay out-of-pocket from
your current income.
Suze Orman’s TV
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IF YOU ARE asking only about the financial advantage of this move, then I might tell you to slow
down. You’re only in your 30s. This loan will be paid
off before you are 50 at your current pace. That is
plenty early enough.
Whether you should instead use the money to
invest in stocks is another matter. Is this money you
might want in the next 10 years or so for some other
goal? If so, it does not belong in stocks. That said,
stocks are always a smart part of a long-term investment strategy.
But sometimes you have to factor in the emotional cost of making any financial choice. If paying
off the mortgage makes you and your spouse just
feel really good, then by all means, speed up those
payments. You’re in great shape. So make the choice
that feels right.
BRIAN BOWEN SMITH
I’ve been unemployed since 2008. During
this time I’ve gone to school and received my
A.A. degree. Since graduation in 2011, I’ve
been living off my IRA savings to make ends
meet. The balance of this IRA is $18,000. My
mortgage and equity loan balances together
are about $64,000.
There are many things I would like to do
with this IRA since I have to use it anyway to
live, so my possibilities are ( 1) continue giving myself a monthly stipend to pay the bills
(mortgage, utilities and one credit card bill);
( 2) pay off an equity loan that has an $18,000
balance; or ( 3) buy a 30-passenger bus I’ve
been eyeing to start a small business (the
bus is $3,000 or best offer). I’m confused on
what strategy I should take.
My husband and I are in our mid-50s, earning about $108,000 a year between the two
of us. We have about $500,000 in retirement
together. Our home mortgage is paid off
and the house is worth about $280,000. We
do not have any debt. We will be receiving
Social Security when we retire.
Our only kid is 27 years old and is going to start medical school this summer.
The school and living total will cost
$75,000 to $80,000 a year. He already borrowed about $80,000 for master’s degree
study. (We paid for his college.) My question is, should we borrow from our home
credit line to pay for his medical school?
We can get loans at a very low interest
rate. If we let him borrow all of it himself,
the interest rate will be about 7. 9 percent.
the interest rate will be about 7. 9 percent.
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DON’ T YOU DARE borrow against a home equity
line of credit (HELOC). The interest rate on your
HELOC is variable, meaning the rate will change
when the index it is tied to goes up or down. It
sounds like you are thinking of borrowing a very
SEPTEMBER 2012 ;e Costco Connection 13
I WANT YOU to focus on one thing: If you continue to use the IRA for the monthly stipend, what
will you do when that money runs out? I am not
interested so much in making sure you preserve the
IRA as I want you to see that you can’t afford your
current lifestyle. Have you thought about selling
your home and renting someplace less expensive? If
that’s not feasible, then it’s time to get a roommate.
That’s where you come up with the monthly stipend
to make ends meet until you are earning more.
As for your small business idea: no. “Eyeing” an
idea? You need to have done a lot more than that to
launch a business. What’s your plan? Are you sure
there is a market for your idea? How long will it take
you to build up? Have you considered the cost of
insurance for a commercial vehicle and maintenance for the bus?
I never think it makes sense to launch a business without at least a year’s expenses set aside as
savings/cushion. Clearly you’re not there. I know
it’s hard, but really commit every ounce of willpower you have to finding work—any job that
helps you pay your bills. That’s the most important
first step. C