Need Financial Advice - WWYD?

[RIDISNEYLOVERS]

Here's the facts:

Due to the divorce I can stay in the house for 5 years and during that time frame I either have to buy out EXH or sell the house. I have to give EXH 40% of the value of the house PLUS simple interest.

Here's the breakdown:

House was appraised at $241,000
Mortgage payoff amount is approximately $65,000
I owe EXH $70,400 PLUS approximately $4,500.00 in Simple Interest if I give him his money NOW.

I have a 15 year mortgage (11 years left) and the interest rate is 4.95% my mortgage payment with taxes is $950.00 per month.

I have about $70,000 in mutual funds that I was planning to use for my retirement (I have no 401K here) as well as my kids college education. They are 7 and 4 right now.

My question is:
Should I refinance the house to a 30 year mortgage at 6.7% pay off EXH, car payment and CC debt but have a mortgage payment of approximately $1,500.00 per month with taxes and keep my mutual funds the way they are ...

OR

Should I deplete my mutual funds to pay off EXH and keep my mortgage the way it is as well as my car payment and CC debt and not refinance?

What should I do?

 

[Irin997]

Do not, do not, do NOT deplete your mutual fund. You can't finance your retirement.

Questions:
What rate is your car payment?
What rate are your credit cards?

I would for sure pay off the credit cards. They are usually anywhere from 10 to 30% interest. If you car payment is as low as your new mortgage rate, keep it and just continue to pay as usual. Take less money from your house, because paying off your car if the rate is as low or lower than the new mortgage rate is just silly. Talk to a financial advisor and they can steer you in the right direction.

 

[shoegirl1020]

How about a second mortgage? Would that make your payment smaller or about the same as re-fi?

 

[mrsklamc]

I'm wondering about a HELOC to pay him off?

 

[mickeyfan2]

Honestly I don't like either option. But if I had to choose one of them it would be to refi the house and keep your retirement money. You will really need that in the future.

Could you just sell the home and move into an apartment while you save up for a downpayment on another home?

 

[jeankeri]

I am in exactly the same situation. Misery really does love company- I feel strangely relieved reading your post and realizing that I am not alone in making this decision.
My soon to be ex wants 1/2 the equity in the house and is hoping for 1/2 now, and 1/2 in 10 years (when youngest is off to college). I have about $25k in retirement savings (Roth & traditional IRAs) which I do not want to touch. Refinancing my 15 yr mortgage to a 30 year could get EX all his $ now, but I would be making the same mortgage payment for 30 more years (ours will also be paid off in 11 years @ 5%; to refinance would up it to 6-6.5 plus points). I am looking at a home equity loan for 1/2 now ($30,000, 7% over 10 years), then repeating same in 10 yrs for the balance. Getting 1/2 now, he will take 2.5% interest on the balance. In truth, it's possible I will be looking to downsize when the kids leave home and (probably) I'll also have fewer furbabies (5 dogs, 2 cats at present) which make the thought of changing homes now just not doable.
Would love to hear the advice you get. I'm having good thoughts for us both

 

[Irin997]

I have to continue! lol

Here's the scenario:

The house and what you owe EXH is $139,900. That's 101,100. Not sure what your cc debt is, but let's estimate $20,000. That's $81,100 left. Let's say you keep the car payment, because the rate is good and you only have 2 or 3 years left. This would mean you would refinance 159,900. You do not have to refinance the entire appraised value, thus bringing down the mortgage payment. Don't take more money out of your house than you need. Just some friendly advice from someone who used to be in the real estate industry.

 

[RIDISNEYLOVERS]

Thanks for such quick replies.

My car payment is $365.00 per month at 3.5% APR. I have 2 1/2 years left to pay on it.

I have a lot of CC debt because I am I in the hole every month in normal expenses of about $2,500.00. Some of the debt I transferred to 2.9% and the rest of the debt is 15.55% so I am thinking about transferring that to a lesser % credit card, but I will have to pay the balance transfer fee.

I have NEVER been in credit card debt before so I now understand how people get into it. I have a total of about $7,000.00 in cc debt right now.

The thing is I can't afford to go anywhere else. I cannot get a rent payment for a 2 bedroom for less than my mortgage payment now.

 

[allyphoe]

You should not refinance 5%, 3%, and 3% debt into 7% debt. Period, end of story, particularly if you'd be refinancing debt you can bankrupt out of for debt secured by your home.

I am in the hole every month in normal expenses of about $2,500

That's the problem you need to solve.

 

[HeatherC]

I would get a fixed home equity loan to pay him off. That way you get to keep your house and not touch your mutual funds.

Could you get him to agree that you will pay him 1/2 of the amount now and then the other 1/2 within 4 years or something if he agreed to the "final amount" of $74,000 now? That way you could get a loan for 1/2 ...work as hard as you can to pay it off and then take another one for the rest in say two years.

This would enable you to keep your house with your 11 year mortgage which is as a very low interest rate. It also lets you keep your retirement intact which is critical. And if you do 1/2 the amount at the time you may be able to afford the monthly payment easier and pay it off quicker.

Heather

 

[Irin997]

Thanks for such quick replies.

My car payment is $365.00 per month at 3.5% APR. I have 2 1/2 years left to pay on it.

I have a lot of CC debt because I am I in the hole every month in normal expenses of about $2,500.00. Some of the debt I transferred to 2.9% and the rest of the debt is 15.55% so I am thinking about transferring that to a lesser % credit card, but I will have to pay the balance transfer fee.

I have NEVER been in credit card debt before so I now understand how people get into it. I have a total of about $7,000.00 in cc debt right now.

The thing is I can't afford to go anywhere else. I cannot get a rent payment for a 2 bedroom for less than my mortgage payment now.

Keep the car payment, you absolutely cannot beat 3.5%. Either get a HELOC to pay off the CC's and EXH or refinance with ONLY the amount you NEED, not the entire appraised value. Check out rates and payments for that amount, not $241,000. Especially check rates for a HELOC (home equity line of credit).

 

[RIDISNEYLOVERS]

The $2,500.00 is in everyday expenses such as (these are monthly expenses):

Tithe: $300.00
Mortgage: $950.00
Car: 365.00
Gas: $150.00
Electric: $60.00
Sewer: $30.00
Water: $50.00
Car Maintenance: $25.00
House Maintenance: $25.00
Medical Insurance: $250.00
Day Care: $725.00
Telephone: $40.00
Groceries: $250.00
Christmas Club: $100.00
Homeowners Insurance: $100.00
Car Insurance: $250.00
Gas (car): $250.00
Pets: $30.00
Miscellaneous: $250.00
Memberships / Dues: $25.00
Hair Cuts: $50.00
Entertainment: $25.00
Kids Sport: $50.00
CC payment #1: $500.00
CC Payment #2: $500.00

If you add this total up it comes to $5,350.00.

$2,709.00 is what I make PLUS what I get in Child Support per month.

So I have a deficit of $2,641.00 every month in NORMAL LIVING EXPENSES. How can I get rid of these expenses? Please give me ideas!!!

 

[mrsklamc]

First I want to say that it's GREAT that you are tithing. Ever since we started tithing, God has always made a way financially even when it seemed like there wasn't going to be one.

First I would say take a look at that list of expenses and see what's fixed and what isn't. Your car payment is at a great rate, for example so I wouldn't try to refi that, nor your mortgage. But look at every category that isn't fixed and see if it can be adjusted. For example, do you really need $100 per month for Christmas, or can you stretch the grocery budget. Can you cut your kids' hair yourself? Stuff like that. $250 is a lot for miscellaneous, too. You want to see where every penny is going, and apply those extra pennies to that cc debt.

You'll get great tips here on the DIS! Plus check out your local library for books by Dave Ramsey, Amy Dacyczyn (The Tightwad Gazette) and see if your church offers a Crown financial class.

ETA: Is $250 a month NORMAL in RI for car insurance? That seems really high but maybe that's a regional difference.

 

[Darcy03231]

How old are your children? You say you have 5 years to either buy him out or sell. In 5 years will your children be at an age where they would be leaving home soon anyway? or out of daycare? Also, in 5 years you will have paid down your mortgage more. I don't think I'd be in a rush to do anything right now, other than try to increase my income and trim my expenses. While I do agree with supporting my church it doesn't look like you're in the financial position to be able to give $300/mo. $250/mo in miscellaneous is also on the high side. Even if you refinanced now and paid off your credit card debt you'll still be short each month and have a higher mortgage.

 

[sk!mom]

I have a lot of CC debt because I am I in the hole every month in normal expenses of about $2,500.00.

I was about to post the advice that I would get a Home Equity Loan for just enough to buy your Dh out when I read this statement. Now I question whether or not you can afford to keep your house.

Why are you going so far in the hole each month? If you got an Equity loan and paid everything off would you be able make your mortgage and Home equity loan payments as well as normal bills with enough left over to keep you from going back into debt?

I wouldn't touch the retirement savings. I would get a Home Equity Loan if I could handle the payments or I would sell the house if I was going to continue adding to debt every month.


I'm sorry for you- I know that this is a tough situation but the reality is that you may be forced to downsize now.

 

[LauraR]

Wow, that's really tough. ITA with PP's who say to keep the car loan and 15 year loan, and get a HELOC for just the high interest credit card and to pay off your husband. You don't want to lose the excellent interest rate on your home and the short term (you're savings tons in the long run)

But your much bigger problem of being so much in the hole every month is a lot harder to solve. It's going to be hard to pretty much cut all your costs in half.

A few things you could do:

1) shop for cheaper insurance. We had a $500,000 home and are paying about half what you are for home insurance. And it costs us $100 a month to insure 2 cars (we're with USAA, I'm not sure if you'd qualify since you have to be military or a dependent). Seems like somebody could beat what you're having to pay.

2)cut the kids hair yourself. They're young enough not to care! I do my 10 and 12 year old boys', and my husband's hair. It's not that hard to learn how to do.

3)can you carpool at all? Your gas costs seem really high. Do you have a long commute.

4)do you have an extra bedroom? Could you rent out a room to a female college student or young professional?

5)As someone else mentioned, see if you can negotiate paying off your husband over a longer period. He should want to see his children stay in their home, too.

Seems like you need a drastic solution, like a better paying job (like those just fall out of the sky), rather than cutting here and there. But you have to cut back as much as possible to slow the hemorraghing. I know this isn't easy, and I wish you all the best.

 

[mickeyfan2]

The $2,500.00 is in everyday expenses such as (these are monthly expenses):

Tithe: $300.00 - God will understand
Mortgage: $950.00
Car: 365.00
Gas: $150.00
Electric: $60.00
Sewer: $30.00
Water: $50.00
Car Maintenance: $25.00
House Maintenance: $25.00
Medical Insurance: $250.00
Day Care: $725.00
Telephone: $40.00
Groceries: $250.00
Christmas Club: $100.00 - Downsize to about 50 for each kid for Christmas. $1200 for Christmas is too excessive.
Homeowners Insurance: $100.00
Car Insurance: $250.00
Gas (car): $250.00
Pets: $30.00
Miscellaneous: $250.00
Memberships / Dues: $25.00
Hair Cuts: $50.00
Entertainment: $25.00
Kids Sport: $50.00
CC payment #1: $500.00
CC Payment #2: $500.00

If you add this total up it comes to $5,350.00.

$2,709.00 is what I make PLUS what I get in Child Support per month.

So I have a deficit of $2,641.00 every month in NORMAL LIVING EXPENSES. How can I get rid of these expenses? Please give me ideas!!!

Sadly I don't see how you could afford to refi or do a new mortgage on your income of $2700. Using the 25% rule your total payment should not exceed $675.

The things in red have to go. No way you can afford them. That reduces your expenses by $800. Still way short. Getting the two credit cards paid off ASAP (via the mutual funds) will help reduce your shortfall by another $1K. But I really hate to see you do that. Even with all of this you are still short by $850.

The things in blue need to be revisited to see if you are paying too much.

I wish you luck, but as it stands with your deficit each month, keeping the house may not be feasible.

 

[Stein]

I recently witnessed the same situation where the wife tried to keep the house, but it ended up taking her down. Looking at your numbers, you are negative every month now, so borrowing money will just make the inevitable happen faster.

Unfortunately, my suggestion would be to sell the house, get the husband his money and you will be left with around 70k after paying him, realator, etc.

With the 70k, pay off both credit cards and the car. This will shave $1365 a month, roughly half of your deficit. The remainder will be a good emergency fund for you and the kids.

The other half isn't so "easy." You must either spend $1300 less, or make $1300 more a month.

 

[Crankyshank]

DH and I have 1 expensive car to insure and one so/so car to insure here in RI. Both are insured up to the gills with 1 accident on our record and our insurance is only $241.36 a month. So I would look for better insurance rates.

My homeowners in RI is $750 a year for a 1200sq ft older home. I have all insurance through AAA which gets me a discount for being a member and giving them all of my insurance business. I would suggest you look around for a deal like that. I know Liberty Mutual also offers a similar discount. also look at raising the deductible for your homeowners. That will get you a better rate.

I don't think it's a good idea to go into debt because of tithing. I would stop that and help your church out other ways for now, like volunteering. Do you have town sewer? That bill monthly is what I pay quarterly. $150 is what I pay in the winter for heating gas. You might want to reduce that by line drying clothes, getting on a payment plan, and lowering the temperature of your house in the winter.

I would reduce the Christmas Club payments also.

 

[ducklite]

Unfortunately you're going to have to make some major changes in your life.

First thing that goes is the car. Sell it (I hope you aren't upside down) and use the proceeds to buy a car that you'll have no payment on--something that gets good milage. And hopefully that will reduce the $3000 a year you are paying in insurance to around $1200 or less. That will save you $500 a month.

Find a less expensive day care if possible. Does your ex pay any of that expense?

I somehow think that God will forgive you if you drop your tithing down to $50 a month or so until your finances come around. I do'nt think he wants kids going hungry or facing homelessness.

$250 a month in gas? That's over 80 gallons a month/20 gallons a week! If you get an average of 20 mpg you are driving almost 100 miles a day? Am I missing something? I think you need to cut that way back-like to around $100/month, tops--see my first suggestion about getting a fuel efficient car.

$250/mo for miscellaneous? It seems like you've itemized things down pretty well--I think you can cut that number back to $50.

Memberships / Dues: $25.00--Whatever it is, cancel it.

Hair Cuts: $50.00 Learn to cut the kids hair on your own, and get yours cut for $15 at Supercuts.

Entertainment: $25.00--Make it $5 for some movies rentals.

Kids Sport: $50.00--This one might have to go.

I think I'd take $7000 out of the mutual fund and pay off the credit cards. That buys you $1000 a month.

I'm going to assume that you are getting at least $500 a month in child support.

I'd sell the house, pay him off, and buy a condo that you and the kids can live in without the worries of exterior maintenance and lawnwork. You can use the money you get from the sale of the marital residence to put a heafty d/p on a 3 BR condo, and probably bring your monthly housing down by $200 or more.

Good luck!

Anne