Suze Orman is an Emmy
Award–winning TV host,
New York Times best-selling
author and motivational
speaker. She can be contacted
Orman will answer selected
questions in this column.
She regrets that unpublished
questions cannot be
Please include “Suze Orman
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Q&A with Suze Orman
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Q My granddaughter wants her father to co-sign for her to buy a home. She has quite a bit
saved toward a down payment, but she works on
commission and it’s hard for her to get a mortgage. What is the best way for him to cover himself, as he and his wife have a special-needs son
and another daughter in college?
—A.L., Phoenixville, Pennsylvania
A Asking anyone to co-sign a loan means you
are asking that person to take ;;; percent
financial responsibility if you fall behind. Good
for your son for wanting to be careful. He should
be concerned, given what’s at stake: his entire
family’s financial security.
One of my most important rules is “Say no
out of love, rather than yes out of fear.” It is
never right for anyone to agree to something
out of love if it will cause financial hardship. I
want your son to carefully consider whether he
should agree to this.
The fact that a bank won’t lend to your granddaughter on her own should be a warning. Why
should he step in if a bank is that concerned?
Does your son know his daughter’s FICO score?
Does she have credit card balances and other
debts? He needs to understand all the facts.
Q What exactly are the advantages of paying
o; a mortgage loan in 15 versus 30 years? My
wife and I are in our mid-40s with two kids.
—D. T., Alhambra, California
A The biggest advantage: You will save a ton in
interest costs. At recent mortgage rates, a
;;;;,;;; mortgage over ;; years will cost you
more than ;;;;,;;; in interest. Total interest
charges for a ;;-year loan would be around
;;;,;;;. Of course, there’s a tradeoff: Your
monthly payments will be a lot higher, with a
shorter payback. Using this ;;;;,;;; example,
a ;;-year loan locks you in to a mortgage payment of more than ;;,;;; a month, compared
with around ;;,;;; a month for the longer loan.
If you can handle the higher monthly payment for a ;;-year loan, it can be a great way to
build financial security faster. At your age, a
;;-year mortgage today means you will own the
home outright before you retire. That is at the
top of my retirement rules, if you expect to
retire in that home.
A nice bonus of choosing a ;;-year mortgage
is that the fixed interest rate can typically be at
least half a percentage point lower than the rate
for a ;;-year. But I want to be very clear: It makes
sense to do this only if you have a large emergency fund, no credit card debt and can keep
saving for retirement. Those are priorities.
The Goldilocks solution may be to take out a
;;-year loan, with the intention that you will
send in extra principal payments every month
or on a set annual schedule, with the goal of having it paid off in ;; years. By doing it this way,
you aren’t obligated to make the higher payments of a ;;-year mortgage; this flexibility can
be helpful if you run into a rough patch, such as
an illness or layoff. Websites such as Bankrate.
com have calculators that will show you how
those extra principal payments will shorten
your loan term.
Q I am close to 59 years old and have an IRA that
my adviser wants me to transfer to an income
and growth model exchange-traded fund (ETF).
The fund is 60 percent equity and 40 percent
;xed income, so it seems to be a bit more aggressive than I need, but I’m not sure. The IRA is now
invested with the objective of moderate growth.
Any thoughts on good questions to ask?
—S.V., Des Moines, Iowa
A You bet I have some questions, and everyone
should ask them before following anyone’s advice.
• What are the expenses for the ETFs you are
recommending? Every mutual fund or
exchange-traded fund charges an annual fee
called the expense ratio. What you don’t pay in
expenses leaves you more money for retirement.
• Why do you recommend this particular
mix of stocks and bonds? You want a detailed
explanation of the factors that went into this recommendation. And please confirm that the
bond ETFs invest in short- or intermediate-term bonds. High-quality bonds can provide
important steadiness when stocks falter, but
longer-term bonds are way too risky right now.
Bond investments have two components:
the interest yield and any changes in the underlying price of the bond. When interest rates
rise, bond prices fall. Right now, bond interest
rates are very low, and the likelihood is that
they will begin to rise. That’s why you should
not own longer-term bonds; they will have the
largest price drop when rates rise.
• Over the past ;; years, what has been the
worst ;;-month performance for a portfolio like
this? Advisers have easy access to historical data
like this. I want you to understand the best
example of a worst-case scenario. That can be a
good gut check: If your portfolio fell that much,
would you be able to ride it out?
If it scares you, that’s a good indication your
adviser needs to spend more time with you to
talk through your options. If you want to invest
more conservatively, you might consider saving
more or reducing your living expenses. C
Mortgage and retirement-fund advice