Author Topic: Pay off mortgate post divorce?  (Read 6515 times)

JodyGirl

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Pay off mortgate post divorce?
« on: June 27, 2014, 09:42:54 AM »
I'm new to the world of trying to understanding finances and investing.  I can't say I'm a natural in this area---one of those "artistic" types, but I'm trying. 

Here's my dilemma.   I've paid off my student loan (22,000) and other debts post divorce settlement.  Now I'm trying to decide whether it makes more sense for me to re-finance my mortgage or just pay it off. 

Currently I owe 35,000 on my mortgage.  There are 23 years left on this at 6%.  Payments are around 400.00.  The original loan included the heinous PMI as it was a no-down mortgage.  Bad decision, but I was in some very difficult circumstances at the time and just wanted a roof over our heads no matter what and the payment was lower than most rents around where I live. 

I could refinance at 2.75% for 15 years and no PMI and a payment of about 250.00 per month if  I put some down. 

I have about 100,000 left from the settlement and I'm working limited hours  now due to a health situation.  We receive 1000.00 per month in child support.  I'm very nervous about letting go of 35,000 to pay off the mortgage.  And I'm wondering if I would be better off just taking that amount instead and investing it somewhere.  My financial planner thinks that I would be better off to refinance rather than repay and he suggests a mix of Vanguard funds.  These are his suggestions.Here are four suggestions:

Here are four suggestions:

Wellesley Income (Balanced)
Equity Income (Large Cap)
Strategic Equity (Mid-Small Cap)
Global Equity (International)

Honestly, I don't know where to start.  I like to keep things simple.  I'm 51.  I need to make the most of this 100,000 that I have left.  I need to have cash, too, until I can figure out my health and employment situations.

So, question.  Pros and cons of refinancing or paying off the mortgage?  I'm really lost.  I need to get back to this financial planner (through my credit union).  He's not pressuring me.  It's just that I'd like to give him a go ahead to purchase funds through Vanguard and just make some decisions so I can stop worrying about all this.  He recommends that I stay with Vanguard as I have the Target 2030 retirement fund there already.    (I have about 59,000 in that now.  I know that's not enough for someone my age.)

Thanks for any help and suggestions. Please keep it simple. As I said, this is not my area of expertise.  I'm no dolt but this is not my strong suit. 

CommonCents

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Re: Pay off mortgate post divorce?
« Reply #1 on: June 27, 2014, 09:48:35 AM »
Now I'm trying to decide whether it makes more sense for me to re-finance my mortgage or just pay it off. 

Currently I owe 35,000 on my mortgage.  There are 23 years left on this at 6%.  Payments are around 400.00. 

I could refinance at 2.75% for 15 years and no PMI and a payment of about 250.00 per month if  I put some down. 

I have about 100,000 left from the settlement and I'm working limited hours  now due to a health situation.  We receive 1000.00 per month in child support.  I'm very nervous about letting go of 35,000 to pay off the mortgage.  And I'm wondering if I would be better off just taking that amount instead and investing it somewhere.  My financial planner thinks that I would be better off to refinance rather than repay and he suggests a mix of Vanguard funds. 

Honestly, I don't know where to start.  I like to keep things simple.  I'm 51.  I need to make the most of this 100,000 that I have left.  I need to have cash, too, until I can figure out my health and employment situations.

So, question.  Pros and cons of refinancing or paying off the mortgage? 

I edited above, and bolded parts I thought were key.  It doesn't sound like you are comfortable about paying off your mortgage at this point, so I wouldn't if I were you.

Two things though:
1. Can you actually refinance $35K?  I understand some amounts are too small to get refinanced.
2. Do remember that by investing in the market your money can decrease as well as increase.  Are you going to be ok investing if there is a market correction shortly after?

PloddingInsight

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Re: Pay off mortgate post divorce?
« Reply #2 on: June 27, 2014, 09:50:00 AM »
Your call, but if it were me I would pay off the mortgage and get a HELOC that would only be tapped in emergencies.  That way you're not paying interest on any debt, but you can get that $35k back if you absolutely need it.

neo von retorch

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Re: Pay off mortgate post divorce?
« Reply #3 on: June 27, 2014, 09:51:59 AM »
Are you drawing from your $100k in savings right now, or does your income cover your expenses?

If you are comfortable with living off your expenses, then investing and refinancing makes a lot of sense. As the previous comment states, your "balance" may decrease during a market downturn, but if you'll be able to hold off on drawing on this money for the next 10+ years, you should come out well ahead of an annualized return of 3% (enough to cover the difference in taxation plus some.) Of course, you'd probably want to take ~6 months times your monthly expenses and put that in a more stable, accessible emergency fund, but invest the rest.

JodyGirl

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Re: Pay off mortgate post divorce?
« Reply #4 on: June 27, 2014, 10:37:16 AM »
My 100,000 is just sitting in savings accounts until I make some decisions.  We are living off of the 1000.00 in child support plus some of the other settlement money that I put into my checking account that I hope will last us through this summer, but the house has needed a lot of repairs  and needs more and that pile is going down fast.  The repairs are must-do---garage roof, gutters.  My income is tiny, but it brings in about 400.00--our grocery money. 

Maybe I've put the cart before the horse here and I should first decide what to do about an emergency fund.    I hate putting money in to those paltry interest earning savings accounts, though. 

waltworks

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Re: Pay off mortgate post divorce?
« Reply #5 on: June 27, 2014, 10:42:56 AM »
6% is a fantastic return for zero risk and it still leaves you with $65k and very low (at least from what I can tell) monthly expenses. Assuming you want to stay where you are, I'd pay it off. $65k is enough to last quite a while and let you figure things out even if you don't find a job or a way to get more income.

I'd sit down and figure out:
1: What does the house need. Set that money aside.
2: What are your monthly expenses? Set aside 6-12 months worth of those (or whatever amount makes you happy)
3: What's left? If it's $35k, kill the mortgage. If it's more than $35k, kill the mortgage and buy some index funds of some kind. If it's <$35k, think about the refi if you can find a bank that will do it?

-W

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Re: Pay off mortgate post divorce?
« Reply #6 on: June 27, 2014, 11:10:08 AM »
Find out the interest rate and amount you could get on a HELOC.  If it is less than 6% and the amount of a reserve it could create is acceptable, pay down the mortgage completely and keep the HELOC as an emergency fund. 

You will have $400 more a month in your pocket immediately (the mortgage payment) - although maybe not quite that much because I understand that in the US the mortgage interest is tax deductible?  This should give you $1400 a month to live on with no shelter costs but repairs and maintenance.

As for repairs - bite the bullet and do what is necessary.  Is you house in an area that has or is likely to experience appreciation?

frugaliknowit

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Re: Pay off mortgate post divorce?
« Reply #7 on: June 27, 2014, 11:11:37 AM »
First, slow down, there's no hurry!!

One thing is for sure:  It makes no sense, repeat no sense to refinance a $35k mortgage.  You will have trouble finding someone to do it.  Some lenders will charge a premium for such a small amount.  There is little or no tax benefit to this mortgage because of it's small amount (versus standard deduction).  It might make sense to accelerate or use some of the stache to be rid of it.

What are your monthly expenses?  What is your monthly income?  What are your goals?  Start there.

waltworks

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Re: Pay off mortgate post divorce?
« Reply #8 on: June 27, 2014, 11:48:17 AM »
The mortgage interest is only deductible if you are exceeding the standard deduction and itemizing, generally. I would guess that the OP has zero federal tax liability with her current income/situation regardless.

-W

Find out the interest rate and amount you could get on a HELOC.  If it is less than 6% and the amount of a reserve it could create is acceptable, pay down the mortgage completely and keep the HELOC as an emergency fund. 

You will have $400 more a month in your pocket immediately (the mortgage payment) - although maybe not quite that much because I understand that in the US the mortgage interest is tax deductible?  This should give you $1400 a month to live on with no shelter costs but repairs and maintenance.

As for repairs - bite the bullet and do what is necessary.  Is you house in an area that has or is likely to experience appreciation?

Chrissy

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Re: Pay off mortgate post divorce?
« Reply #9 on: June 27, 2014, 12:01:35 PM »
How long will you collect $1,000/mo of child support?

Like several of the posters, I also think paying off the mortgage is the way to go.  Sure, there are some super slick ways to use a HELOC or refinance and maybe make a little money, but you sound frazzled, and I think owning the home outright would give you peace of mind.  You said you like to keep things simple, and asked us to keep it simple, too, therefore:

1)  Pay off mortgage ($35,000)
2)  Put aside some cash for the repairs & emergency fund ($15,000?). 
3)  Invest the rest in Vanguard fund VTSAX ($50,000)

Loads of Mustachians are in VTSAX.  Here are some source materials that support this choice.

http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/
http://www.mrmoneymustache.com/2013/03/07/how-about-that-stock-market/

Good luck, and keep us posted on what you decide to do.

JodyGirl

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Re: Pay off mortgage post divorce?
« Reply #10 on: June 27, 2014, 12:53:41 PM »
Thank you all for such thoughtful replies.  I can see positives in these different approaches.  I am now leaning toward paying off the mortgage. 

Indeed, I am frazzled having just been diagnosed with a chronic health condition and having been talked out of asking for alimony by the mediators and lawyers---even my own.  Being literally sick and tired, I was not thinking clearly at the time and didn't put up much of a fight as I just wanted to be done with the stress of it all which was worsening my health situation.

The 1000.00 continues for three more years.  Then it goes down probably about a third when the oldest goes off to college which I am responsible for completely.

VTSAX.....one question.  Given my age, 51, and my future employment prospects (not good) is it a good idea to put so much into one fund?  What do you all think? 

Thanks again.

CommonCents

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Re: Pay off mortgage post divorce?
« Reply #11 on: June 27, 2014, 01:57:43 PM »
The 1000.00 continues for three more years.  Then it goes down probably about a third when the oldest goes off to college which I am responsible for completely.

Why?

I encourage you to focus on funding your retirement first, and only after to paying for a child's college.  S/he can get loans (and it's her/his education), you can't get a loan for retirement.  Start communicating now that the kids will need to pay for college themselves so they have time to look for scholarships and consider options.

Fishingmn

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Re: Pay off mortgage post divorce?
« Reply #12 on: June 27, 2014, 02:08:12 PM »
Why?

I encourage you to focus on funding your retirement first, and only after to paying for a child's college.  S/he can get loans (and it's her/his education), you can't get a loan for retirement.  Start communicating now that the kids will need to pay for college themselves so they have time to look for scholarships and consider options.

+1

You can't borrow for retirement - unfortunately, your children should either pay for their own college or hit up dad.

JodyGirl

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Re: Pay off mortgate post divorce?
« Reply #13 on: June 27, 2014, 02:17:57 PM »
Yes, I understand that I will have to focus on my retirement first and my sons will have to focus on college and those expenses themselves.  It's a a great personal sadness to me that I will not be able to help them very much if at all that.  My ex-husband could easily, but he will not, but what is done is done as far as the settlement goes. We are researching colleges with high graduation rates and low indebtedness after graduation.  I hope to be able to provide some help at least even if it is to buy books while he picks up the rest. He's 15 now and very sensible in some ways and wasteful in others.  I think it's time to get him hooked up with MMM! 

gimp

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Re: Pay off mortgate post divorce?
« Reply #14 on: June 27, 2014, 02:31:02 PM »
1 - Pay off mortgage, invest the rest. Since your income is low, I'd recommend stability over growth - something like a 60/40 total market index fund to total market bond fund. That part is easy, especially since the Target 2030 probably does this already for you.

The hard part is expenses. You said $400 was grocery money - for how many people is that? What else do you spend on? Medical care, car/insurance/gas/transportation, home repairs, clothing, property tax? Even with a paid-off house, 400/month won't go far at all. Obviously that's a concern.

2 - I agree that it sucks, but your kids are on their own. They're adults. If it makes you feel better, making your kids actually adults, not just legally adults, before you're ready is probably good for them - they'll be ready before you're ready for them to be ready, if you know what I mean; they're itching to take the reins to their life as much as you're itching to be the providing parent.

Don't look into colleges with high graduation rates and low indebtedness by itself, and definitely not primarily. If college is the means to make a career, I'd look into what that career looks like long before I'd look at specific colleges. An engineer graduating with $50k in debt will do way better, most likely, than a communications major graduating debt-free. If college is not the means to a career, but just "the next stepping stone," then other alternatives should be researched - namely, skilled trades, which take far less extra education (money, time, opportunity cost) and have an immediate, and pretty damn good, payoff. I'd be a mechanic over a communications major any day, you know?

JodyGirl

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Re: Pay off mortgate post divorce?
« Reply #15 on: June 27, 2014, 02:49:03 PM »

Don't look into colleges with high graduation rates and low indebtedness by itself, and definitely not primarily. If college is the means to make a career, I'd look into what that career looks like long before I'd look at specific colleges. An engineer graduating with $50k in debt will do way better, most likely, than a communications major graduating debt-free. If college is not the means to a career, but just "the next stepping stone," then other alternatives should be researched - namely, skilled trades, which take far less extra education (money, time, opportunity cost) and have an immediate, and pretty damn good, payoff. I'd be a mechanic over a communications major any day, you know?

Good points.  That list of schools is just a starting point.  I'm a former college counselor who has worked in many areas of student affairs.   Education is about more than getting a job afterward although that certainly is the next part of the adult journey.    I believe the education part is for the education part and the job part is a separate concern from that.  I have no problem with either of my kids getting a college degree (as long as they don't go under as a result) and then deciding afterward to be a mechanic, too.  :) 

My income is 400.00 plus 1000.00 in child support.  I've 100% decided to pay off the mortgage now after all these replies.  Thanks. 

« Last Edit: June 27, 2014, 03:20:53 PM by JodyGirl »

okashira

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Re: Pay off mortgate post divorce?
« Reply #16 on: June 27, 2014, 03:53:55 PM »
Agreed. Pay it off.

gimp

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Re: Pay off mortgate post divorce?
« Reply #17 on: June 27, 2014, 03:54:13 PM »
College is for education and broadening your world-view if you can afford it. If you can't, it's for a job. Almost nobody can afford it for just education, these days. That's my opinion, and as a college counselor you're probably going to disagree with me vehemently, but so it goes. College for education is just delayed adolescence and adulthood, a high school 2.0 (particularly apt since high school doesn't teach how to actually get and hold a job, nor the skills necessary for one, either), except now you're getting into debt to do it.

JodyGirl

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Re: Pay off mortgate post divorce?
« Reply #18 on: June 27, 2014, 04:05:09 PM »
That's my opinion, and as a college counselor you're probably going to disagree with me vehemently, but so it goes. College for education is just delayed adolescence and adulthood,

I'm not going to disagree vehemently. I've worked in all kinds of colleges from the two year technical to the four year private (and expensive) liberal arts.  I think I've got a good grip on what a college degree can and cannot do.  Also, I'm from the working class originally, so I'm not one who was born into money.  If I weren't ill now, I'd still be working physically hard at my residential cleaning business.....even me with my fancy M.S. in Ed. degree.  I was doing very well at that until a health crisis derailed my life.   Someone asked me why I was CLEANING what with that fancy degree. I said "You've got it all wrong.  I used my smarts to START A BUSINESS."  Granted, you don't need my degree to start that business, but I think my education served me well in terms of critical thinking abilities. 

Peace and thanks for your perspective.  I'm very open to many viewpoints and consider them thoughtfully!

Chrissy

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Re: Pay off mortgate post divorce?
« Reply #19 on: June 27, 2014, 06:34:37 PM »
In some states, it's possible to ask for spousal support AFTER the divorce.  Go to a different lawyer, and ask about it.

Okay, I'm hearing you want diversification, but you still want to keep it simple.  FYI, VTSAX holds every company in the entire U.S. stock market, so it is diversified in that way, but maybe you object to only being in U.S. stocks.  That's understandable.

In the four funds suggested by the advisor, your allocation would look like this:

15% Bonds -- Wellesley
60% US stocks (10% come from Wellesley)
25% International stocks

The EXACT same diversification can be found in the Vanguard Target Retirement 2035 Fund (not the 2030), which currently holds:

15% Bonds
60% US stocks -- VTSAX
25% International stocks

One fund, same diversification, AND it rebalances by itself!  I'm suspicious that your advisor is trying to get you to frequently rebalance between the four funds, so he/she can make commissions.  I'm far from an expert, though.  Why don't you ask the Mustachians over at Investor Alley what they think?

Zamboni

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Re: Pay off mortgate post divorce?
« Reply #20 on: June 27, 2014, 07:58:57 PM »
Please accept my best wishes for your health to improve!

I would also pay off the mortgage.

Regarding the Vanguard fund, you don't need anyone to help you purchase those but the people at Vanguard.  Give them a call.  No other middle man is needed.  Since your employer stash is already with them, they might even have a special service phone number.  I have found them to be extremely knowledgeable and helpful (especially the people that are through the phone line provided by my employer, also a college.  Even though you don't work there any more you can look online at the HR site and see what phone number they list.)  My stocks/bonds asset allocation is nearly identical to Vanguard 2035 right now, but I buy the separate funds myself because:
a)  the fees are slightly lower especially for the admiral shares and
b)  I am willing to rebalance myself and do so every few months.

If YOU have sole custody, then the boys will likely qualify for oodles of financial aid.  Therefore, they should feel welcome to apply to even expensive private schools which have large endowments.  You might be pleasantly surprised by the financial aid packages they offer.  If their Dad won't pay up for college, then he should just recuse himself of formal custody on paper now or at least by their junior year of HS so he won't be listed as a parent on the FAFSA.  His salary sounds like it will muck up their aid package.  That is just my opinion; I realize his opinion probably differs.   Good luck with everything!

former player

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Re: Pay off mortgate post divorce?
« Reply #21 on: June 28, 2014, 02:52:03 AM »
Have you considered selling the house and downsizing?  It sounds as though you are still in a family house, needing considerable maintenance and repairs, when you have limited income and health issues.  Longer term, a move to somewhere smaller and more manageable is on the cards in any case, so why not make the move now?  You could get rid of the mortgage and have more capital to invest.

JodyGirl

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Re: Pay off mortgate post divorce?
« Reply #22 on: June 28, 2014, 11:31:20 AM »
Thanks for that info on Vanguard 2035, Chrissy!  I had been wondering about just putting some money in a fund a little further out than the one I already have that's in my IRA.   Sounds like that would be just a tad more aggressive than my 2030 fund which would be good and yet give me a comfort zone factor that I need given my age and circumstances. 

As much as I'd like to sell my house, I'm not sure how much resale value it has.  It's tiny (650 sq foot) and sits on a patch of land that used to be a swamp.  The basement is not even usable for extra square footage as it regularly fills with water.   I have to admit that the house purchase was probably one of the biggest financial mistakes I've ever made.  Selling it would  not even satisfy the loan provided I could sell it.  Live and learn. 

To everyone who gave me such good advice and good wishes, thank you.  This was my first post other than the Hi, I'm new here post.  You people rock.

randymarsh

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Re: Pay off mortgage post divorce?
« Reply #23 on: June 28, 2014, 11:41:04 AM »
The 1000.00 continues for three more years.  Then it goes down probably about a third when the oldest goes off to college which I am responsible for completely.

Why?

I encourage you to focus on funding your retirement first, and only after to paying for a child's college.  S/he can get loans (and it's her/his education), you can't get a loan for retirement.  Start communicating now that the kids will need to pay for college themselves so they have time to look for scholarships and consider options.

Does the divorce agreement actually state that you must pay for college? I doubt that it does if you're the one receiving CS. While you might want to, you have no actual obligation to pay for anything. Your kids can pick which parent they use for the FAFSA so if your income is still low at that time, they'll probably qualify for a decent amount of grant aid.

DocCyane

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Re: Pay off mortgate post divorce?
« Reply #24 on: June 28, 2014, 11:50:33 AM »
Don't forget the GI bill to help pay for college after years of service:

http://en.m.wikipedia.org/wiki/G.I._Bill

I had a friend do this. She was military police for four years with the Air Force, then went to school on the GI Bill while doing ROTC and now she's a pilot.

There are options other than straight to college and taking a ton of loans. A little maturity and real world experience is a good thing.