Skip to comments.Dave Says You Don't Need Babysitter for Your Money
Posted on 06/18/2013 10:43:00 AM PDT by Kaslin
My son has a $115,000 mortgage at 5.8 percent. He also has a home equity line of credit of $40,000 at 9 percent. Currently, he can get a 30-year loan at 3.5 percent, or a 15-year note at 2.75 percent. His take-home pay is between $70,000 and $80,000 a year, and these are his only debts. Should he combine the mortgages into one loan?
First, I only recommend mortgages of 15 years or less. Now were looking at a 2.75 percent loan versus a 5.8 percent loan versus a 9 percent loan. I advise people to put home equity loans under Baby Step 2 of my plan, which is pay off all debt except for the house, provided that the loan is less than half of your annual income. Based on the income figures you gave, this situation is kind of on the bubble.
If I were in your sons shoes, Id probably combine the two loans and refinance. Id go for a new $155,000 fixed-rate mortgage at 2.75 percent, with no balloons and no calls. This kid can live a good life and get the mortgage paid off pretty quickly with the kind of money hes making.
But if its me, Im getting as short a term as possible on a refinancemaybe even a 10-year note instead of 15 years. Just imagine him getting all this knocked out and still having the majority of his life ahead of him. Thats financial peace!
My husband and I are debt-free. Recently I learned that I have a blended fund for retirement. Do you think I should switch to self-chosen funds? I have $26,000 invested at the moment.
My advice is to move your money into self-chosen funds. The problem with blended funds is not that they are blended, but that theyll move it around based on your age and where they perceive you to be in life. You wont even realize its happening. I want you to be a lot more intentional with your money and know whats happening every step of the way.
With self-chosen funds you can look at them and say, Those are my funds. Then, if down the road you decide one isnt doing as well as you like, you can move the money to a different fund. With blended funds its almost like having a babysitter for your money. Youre not the one watching the kids, and to me thats a big mistake.
There shouldnt be a lot of fees inside your 401(k) when it comes to trading funds. Theres a good chance there wont be any fees at all, especially if you stay within the same company. Check into it, Marina, and talk to your human resources people. They can give you all the details.
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