I have been saving back money for years as an "emergency fund" and have accumulated about 75% of what my house is worth. I've also been making double payments on the mortgage of my small house. I recently lost my job and am unsure when I'll be able to secure a new one.
The thought of not having my house paid off is frightening considering my current situation. Should I pay off my house, which would leave me with about $12,000 to survive on until I find new work, or should I continue to use my emergency fund until I can secure a new job?
I only have one shot at paying off the house...if I burn into too much of my emergency savings, the interest on the mortgage will have risen to a point at which I'll no longer be able to pay it off. Thanks for your sincere insight.
2006-12-11 09:18:35 · 14 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
***Answers to questions:
No, I do not have an ARM. It is a fixed rate, 30-year mortgage at 5.84%.
2006-12-11 09:23:34 · update #1
Sorry, I was not clear when I wrote that my "interest will have risen." What I meant to say was that the accumulation of interest over time will have exceeded the amount I have saved, the longer that time passes and the more I dip into my savings. Sorry for the confusion!
2006-12-11 09:30:01 · update #2
I would consider paying off most, but not all of the mortgage.
First try to get a job....really any job.....because of what I'm going to suggest.
Take a chunk of the money and pay down quite a bit on the house, but then attempt to refinance the mortgage down so that the payment is even lower.....
It will be more affordable and you'll still have an emergency fund...but now your obligation will be much less and you could probably continue to pay the mortgage even if you have to take a McJob if necessary.
Caveat: you'll have closing costs and a longer payback and that means over the long run you'll pay back more than if you just paid it down now.
But from what you've said.....you are really looking for security right now...not cost savings.....
This plan lets you get security you are looking for and lets you keep some of your nest egg.
However, you won't get the ReFi without a paystub...so you may have to work down a notch on your qualification scale...but it doesn't have to be forever....just until you refi and find another job.
2006-12-11 09:25:54 · answer #1 · answered by markmywordz 5 · 0⤊ 0⤋
My general rule of thumb is that I have to have a minimum of 12 months worth of bill-paying cash left over after the debt is paid off.
This is rather conservative, but where money is concerned, conservative is good.
When you don't have income, remaining liquid (having cash on hand) is of paramount importance. What if you happen to have a double dose of bad luck and get sick while you are unemployed? Insurance or no, the costs would be high. There are too many risks/unkowns to part with your emergency cash during an actual employment emergency.
If you have been making double payments, then you have also built up a certain amount if equity in the house, which you could tap into as well, as a last resort.
My vote would be to keep the cash for now, stabilize your unemployment situation as soon as you can, and resume your thrifty saving toward mortgage payoff untill you have the cash on hand plus cash left over.
Unless you are physically unable to work, no one stay unemployed for ever.
2006-12-11 09:30:44 · answer #2 · answered by Anonymous · 0⤊ 0⤋
I say that you refinance to a fixed rate, and just keep paying your mortgage. Execpt for unemployment, you aren't getting any cash flow in right? Sit tight on your savings...you are in a very lucky situation because you don't have to settle for any ole job that comes your way. Just think, if you use the majority of that money to pay off your mortgage, you'll be left with no money for your living expenses, which you can not take out a loan to cover. At least with a mortgage, you have your property as collateral.
Good luck with the job hunt!
2006-12-11 09:25:20 · answer #3 · answered by everfair 3 · 0⤊ 0⤋
I'm all for paying off your house, but if you are under the age of 59 1/2 when you take money out of a retirement account, you must pay 20% in taxes right away and another 20% early withdrawal fee
2016-05-23 06:38:26 · answer #4 · answered by ? 4 · 0⤊ 0⤋
I'm sorry for your job loss. As a shrinking small business, I understand your pain all to well. If I were in your shoes I would pay off your house. Then you only need enough money to pay property taxes, utilities and food for your most basic needs.
It may be tough, or it may be easy to find another job. Depending on your skills & education, it may be very tough. Very quietly over the last 6 years good middle class jobs have evaporated while congress worries about steroids in baseball, gay marriage, raising credit interest limits, and screwing over the old people, our middle class is disappearing. Good luck to you.
Ask yourself how much do you need monthly to survive without the house payment? Then, if you have a really hard time finding a good job, you know how much you will need to pay your bills, you can get a part time job that leaves hours open in the day to continue looking for a job comparable to what you lost.
I wish you ease in your job search.
2006-12-11 09:40:54 · answer #5 · answered by Gem 7 · 0⤊ 0⤋
Instead of paying off 75% - what about refinancing a much smaller mortgage.....take 1/2 of what you have in savings to pay down the house in a refi......then your mortgage pyment will be so much lower and you'll still have 1/2 your emergency fund.....with a smaller mortgage pymt, you won't burn thru it as fast....
I'd love to carry a $40K mortgage instead of $240K.......just a thought.
2006-12-11 09:58:57 · answer #6 · answered by Paula M 5 · 0⤊ 0⤋
I'd secure a new job before paying off the house. If you pay the ohouse off but cant pay your bills they can take the house and then you have nothing. Keep your head up, you'll get a new job.
2006-12-11 09:22:28 · answer #7 · answered by Melli 6 · 0⤊ 0⤋
Pay off the mortgage. You will still have $12,000 left, and if necessary you can take any job at all to supplement that until you find the job you want.
2006-12-11 09:30:11 · answer #8 · answered by Anonymous · 1⤊ 0⤋
You will save more money by paying the house off now. (not paying interest anymore) and if things got bad you could always sell the house off or take out a loan on your house later. I would pay it off.
2006-12-11 09:24:38 · answer #9 · answered by setter505 5 · 0⤊ 0⤋
did you say you had an adjustable rate mortgage? WHY for crying out loud? GET OUT OF IT now! Refy to a fixed rate.
Ok, now to pay off or not to pay off....if you have a ARM, I'd pay it off.
2006-12-11 09:20:34 · answer #10 · answered by Munya Says: DUH! 7 · 0⤊ 0⤋