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Downriver
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| Unclear as to how to proceed |
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Due to forced early retirement and downward pressure on spouse's wages due to outsourcing we find ourselves a bit confused as to how to proceed
We have a home worth, we hope, around $300k...we have about $375 in it..but it is very much out in the sticks......sixty miles from the nearest town..and the market is depressed
Our income has declined from around $150k to around 50k. Sweety works at home, but has enrolled in a continuing education program that would eventually necessitate relocation.
Health Insurance is around 25% of our net monthly income.
we have a mortgage balance of $135k on a 5 year ARM...with two years to go
We expect to own the home for around five more years.....
We have around $70k in a savings account...making not very much. it is rainy day money
my question is this.....should I take a portion of that $70k and pay down the 5/1...and if so, should I refi now.....or wait.
Any insight will be greatly appreciated.
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Fri Mar 02, 2012 5:13 pm |
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oldguy
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Not sure what you would gain by putting your $70k against the $135k loan - you would still have to pay the $6000/m payment, plus you wouldn't have any savings.
You could refi the $135,000 into a 30 yrs loan, that would cost about $680/m - ie, way more doable on a $50,000 income. Your shelter costs would be about $8000/yr plus maybe $4000/yr for tax/ins. Your health ins is about $10,000/yr - so that leaves about $25,000/yr to live on. Plus you would have the $70k in the bank as backup.
If you were high earners ($150k/yr) for any length of time, you must have some sizable 401k, 403b, IRA accounts? Are you close to age 59 1/2 where you can access those funds in case of an emergency? Any investments - mutual funds, stocks, etc?
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Fri Mar 02, 2012 6:28 pm |
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Downriver
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quote:
Originally posted by oldguy
Not sure what you would gain by putting your $70k against the $135k loan - you would still have to pay the $6000/m payment, plus you wouldn't have any savings.
Not sure where you got that 6k number from.....when you make a principle payment on an ARM...your payment drops with the balance. The current payment is less than $500 ....
I would not put the entire $70k in it...only a portion. My fear is that rates will rise more than we can afford....
Yes..we have several IRA's and a 401K and I am 64. I have no desire to tap either the IRA's or that crappy 401k...because that would be taxable income. it is there, though, if necessary.
Like many of us Boomers, a lot of our savings are in our home...a sad predicament.
Thanks for your response
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Fri Mar 02, 2012 6:44 pm |
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littleroc02us
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IMO why not look for full time jobs, your only 64? Also, since your income went down drastically I wouldn't use the 70k on paying down the principle because you need it for emergencies. Then I would attempt to refi the remaining 135k on a 10 year mortgage which our credit union does and other banks do, your interest rate will be around 3%. If you do decide to work more then yes I would pay down the balance of the mortgage. As for having a lot of your money tied up in homes, my parents did that throughout their life and that is where a lot of their wealth has come from.
Risk comes from not knowing what you're doing. (Warren Buffet)
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Fri Mar 02, 2012 7:23 pm |
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oldguy
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quote:
no desire to tap either the IRA's or that crappy 401k
LOL - those crappy 401k's that the Media has had such fun with a few yrs ago have recovered to their old highs (and no one invested everything at the high). The SP500 Market Index has grown 20.41%/yr for the past 3 yrs.
But you're right about the taxes, I'm past the RMD age so I'm required to sell some every yr and pay the tax.
$6000 - I've never had an ARM - so I thought you had a 5-yr loan. As for the rates going up, that is likely. With our home and our rental houses I always use the 30-yr fixed rate capital, I don't want to be forced into refi's or sales. (I had 6 mortgages when we went thru the 15% mortgages of the 1980s, my fixed arate loasn saved my bacon).
In any case, I certainly wouldn't tie up more capital in the house, too much equity locked in the house is part of your problem statement. If it was mine, I would do the opposite - ie, I would put a 30 yr FR loan on it for as much as possible and invest the extra elsewhere. Remember, mortgage rates are at a lifetime low for most of us - and US mortgages are among the cheapest capital in the world, no other nation gives an average citizen 100's of thousands for 30 years at a fixed rate. A 30-yr 4.5% note could be golden 15 or 25 yrs from now. (Coincidently, I did a 30 yr refi on one of our houses at age 64 - and that money is currently earning a good return in the SP500 Index).
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Fri Mar 02, 2012 7:41 pm |
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Downriver
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quote:
Originally posted by littleroc02us
IMO why not look for full time jobs, your only 64? Also, since your income went down drastically I wouldn't use the 70k on paying down the principle because you need it for emergencies. .
My career...has been in timber processing. There is no market for old Lumbermen these days.....and a move would be expensive. there is no local employment available. the nearest town is sixty miles away and the nearest city is several hundred.
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Fri Mar 02, 2012 8:19 pm |
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Downriver
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quote:
Originally posted by oldguy
LOL - those crappy 401k's that the Media has had such fun with a few yrs ago have recovered to their old highs (and no one invested everything at the high). The SP500 Market Index has grown 20.41%/yr for the past 3 yrs.
In any case, I certainly wouldn't tie up more capital in the house, too much equity locked in the house is part of your problem statement. If it was mine, I would do the opposite - ie, I would put a 30 yr FR loan on it for as much as possible and invest the extra elsewhere. Remember, mortgage rates are at a lifetime low for most of us - and US mortgages are among the cheapest capital in the world, no other nation gives an average citizen 100's of thousands for 30 years at a fixed rate. A 30-yr 4.5% note could be golden 15 or 25 yrs from now. (Coincidently, I did a 30 yr refi on one of our houses at age 64 - and that money is currently earning a good return in the SP500 Index).
S&P 500 index....is down 8% over 5 years...better than real estate. But it still blows.
my thinking is this...the savings account is making...maybe .75% if that. If I divert a portion of that into my home equity, then I would be making 4.5%, which is the rate on the ARM...is that flawed? It also makes a fixed mortgage cheaper, and that is in the cards, either sooner or later. it does take a chunk out of the buffer, but sweetie is going to be working for several more years. I robbed the cradle.
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Fri Mar 02, 2012 8:33 pm |
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littleroc02us
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So then why not refi for 10 years with a 3% interest rate and keep the rest for EF. If your looking to make money off the 75k and your thinking about putting it into your property, how will you quickly get that cash liquid in case of EF? Will you be able to live off the 50k until you can draw SS and 401k's?
Risk comes from not knowing what you're doing. (Warren Buffet)
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Fri Mar 02, 2012 8:56 pm |
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Downriver
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quote:
Originally posted by littleroc02us
So then why not refi for 10 years with a 3% interest rate and keep the rest for EF. If your looking to make money off the 75k and your thinking about putting it into your property, how will you quickly get that cash liquid in case of EF? Will you be able to live off the 50k until you can draw SS and 401k's?
I'm 64..I draw SS
the goal would be to lower the payment. a 10 year note would raise it.
Eventually, we will be moving. Our property is fairly large and requires substantial upkeep. Sweetie is continuing her education in Medical Coding...she did very well in Transcription but VR software, a fraud, and outsourcing, the real enemy, has place terrific downward pressure on her wages.
I do not wish to market this property at least until there is some upward movement
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Fri Mar 02, 2012 9:21 pm |
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oldguy
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quote:
If I divert a portion of that into my home equity, then I would be making 4.5%, which is the rate on the ARM...is that flawed?
Not flawed - it works as you say. I do the exact opposite, I borrow against my houses and invest the money - but I invest for longterm returns, I've averaged a little over 11%/yr over the past 35 yrs. But you are correct in your thinking, shortterm (5 yr) investments are unlikely to give you a reliable 11%/yr. But my bond funds have averaged 6%/yr over the past 10 years - you might consider keepiong your $70k accessible w/ a bond fund.
Too bad you're not close to Redding, I see 635 job openings there - must be either a large industry or some govt offices? Any trucking jobs? In Ariz they are hiring old truckers (the young ones can't pass the drug test or show a clean driving report).
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Fri Mar 02, 2012 11:40 pm |
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Downriver
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quote:
Originally posted by oldguy
quote:
If I divert a portion of that into my home equity, then I would be making 4.5%, which is the rate on the ARM...is that flawed?
Not flawed - it works as you say. I do the exact opposite, I borrow against my houses and invest the money - but I invest for longterm returns, I've averaged a little over 11%/yr over the past 35 yrs. But you are correct in your thinking, shortterm (5 yr) investments are unlikely to give you a reliable 11%/yr. But my bond funds have averaged 6%/yr over the past 10 years - you might consider keepiong your $70k accessible w/ a bond fund.
Too bad you're not close to Redding, I see 635 job openings there - must be either a large industry or some govt offices? Any trucking jobs? In Ariz they are hiring old truckers (the young ones can't pass the drug test or show a clean driving report).
Redding...is 150 miles away. I don't think the employment picture in Redding is as rosy as it seems
There is plenty of work in Southern Oregon for Truck Drivers.....one of my friends, a 40 year forest products management veteran...is driving long haul
That $70k is just sitting there...not working for me at all...that is what's bugging me. I do not share your views on the stock market...I don't think the current Bull is at all sustainable given the true economic picture.
Thanks again for your responses
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Sat Mar 03, 2012 3:40 pm |
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oldguy
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quote:
That $70k is just sitting there...not working for me at all...that is what's bugging me. I do not share your views on the stock market...I don't think the current Bull is at all sustainable
I would never try to predict the 'sustainable' part - I'm strictly an investor, not a trader. I invest steadily, incrementally, for decades. That way the 'up' markets and the 'down' markets statistically cancel and converge on the 11%/yr longterm average.
I tried trading in the 1960's/70's, I learned a lot about how the market moves - I used individual stocks, call options, sold covered calls, bought 'puts', traded corn futures. And after I QUIT that, I became wealthy. Just like you - I can't stand to have large amounts of 'dead' money sitting idle, we never keep more than $5000 in savings, often much less. Ours is in the SP500 Index - we use that fund for rental houses, cars, emergencies, etc.
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Sat Mar 03, 2012 10:54 pm |
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