Before you even consider using your home as a financial backstop, you’ll want to have a firm grasp on how much you spend each month.
To do that, visit your local stationery or business-supply store and purchase a “personal expense work sheet” or similar fill-in-the-blanks form that asks you to detail exactly how much money you spend each month and--equally important--how you spend it.
“Take a hard look at all the expenses you have today, and decide which ones can be eliminated,” said financial planner Jack Blankinship. “Do you really need a gardener, a pool cleaner or a maid to come in several times a month? Do you need to dine out as often as you do now?
“If you think you might lose your job, eliminate these expenses now and start putting the money you’ll save in the bank. If you eventually wind up out of work, you’ll be able to tap your savings to make your mortgage payment or to pay other bills.”
If you seriously think that the future of your job is in jeopardy, you might also want to go out now and pick up a second job or do some free-lance work to supplement your income.
“Put your extra earnings in a money market fund or some other type of safe investment, and only tap it if you need to,” he said.
“Also start getting those resumes out,” said Dwain Greer, executive vice president of banking giant Shearson Lehman Mortgage Corp. “Don’t wait until you get a pink slip before you start looking for a new job--start looking for one now.”
Also tally up your total assets. If you fall on hard times, many financial experts say that you should sell your stocks, bonds, mutual-fund shares and the like before you tap the equity in your home.
Don’t forget other possible sources of cash. Perhaps you have some jewelry, furs, a boat or an extra car that can be sold to raise money or lower your monthly debt burden.
Life-insurance policies and annuities can often be cashed in or borrowed against at unusually low interest rates. It might even make sense to withdraw money from your retirement account, although you might suffer a nasty tax bite.
Also consider consolidating your debts. “You might be able to save some money by taking out one big loan and paying off all your high-interest credit-cards and other debts,” said banker Greer.
Greer said the rate you pay on the bill consolidation loan will probably be much lower than the rate you pay on your credit cards. That would lower your monthly finance charges.
In addition, bill consolidation loans--unlike some auto loans, credit card bills and many other types of debt--are usually paid back over several years. “By stringing your debt out over a longer period of time, you’ll lower your overall monthly payments,” Greer said.
AVERAGE RATES FOR RESIDENTIAL MORTGAGES Average rates for residential mortgages as of Nov. 30, 1990.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 9.66% 9.96% 9.82% 7.99% 8.29% California 9.91 10.17 10.05 8.33 8.27 Connecticut 9.66 10.00 9.86 8.05 8.25 Wash. D.C. 9.47 9.81 9.66 7.66 8.08 Florida 9.65 9.94 9.81 7.95 8.26 Mass. 9.68 10.04 9.88 8.13 8.51 New Jersey 9.68 9.95 9.84 7.92 8.34 N.Y. Metro 9.75 10.05 9.92 8.04 8.39 New York 9.86 10.16 10.03 8.15 8.48 N.Y. Co-ops 10.09 10.33 10.24 8.34 8.81 Pa. 9.40 9.72 9.57 7.59 7.72 Texas 9.41 9.72 9.58 7.97 8.12
SOURCE: HSH Associates, Butler, N.J.