Paying a Little Extra on Mortgage Better Strategy for Early Payoff
Question: My wife is 30 and I am 34. We have decent jobs, and our combined income is about $125,000 a year. We have been living well below our means, and have enough money to completely pay off our mortgage. Many advisors have told us not to do it for one reason or another. Most have said that as our mortgage rate is only 6%, we should invest the money instead. However, my wife and I feel that with jobs being lost every day, it would be smart to just bite the bullet and pay off the mortgage. As a bonus, we’ll save on the interest we otherwise would have paid. Keep in mind that we are not paying extra every month. We will be paying with cash that we have saved for the last 2 1/2 years through blood, sweat and tears. I hope that your answer is a refreshing change from most that we have heard lately. After all, a financial advisor at the bank that holds our mortgage told us to put our money somewhere else!
Answer: Does the answer “it depends” count as a refreshing change?
On the one hand, with jobs being lost every day, most people would want to increase their financial flexibility--not decrease it by tying up more money in one asset (a home).
On the other hand, with the stock market in tatters and returns on fixed-income investments so low, the return from paying off your mortgage early starts looking a little better.
Of course, you’re still working with very cheap money. The after-tax cost of your mortgage is probably 4% or less. Over time, you’re likely to do much better investing your money in stocks than you are in paying off your mortgage.
But you might not be willing to take that gamble. If you’re already saving sufficiently for retirement, you’re certainly free to start adding a little extra to your monthly mortgage payments to pay the loan off more quickly.
That’s probably a better strategy than dumping all your savings into your home. But if you insist on the latter, make sure you open a home equity line of credit now--while you’re both employed--in case you need money in an emergency.
Enlist Credit Bureau’s Help in Fixing Error
Question: Last year I received a series of telephone calls from a bank telling me that my payment was late, and they were going to take legal action if I did not clear up my account. I told them I was not one of their clients, and owed them no money. It turns out they had sent unsolicited Visa checks to me at an address where I no longer lived, and someone else had used them, signing my name.
After protracted communications, they agreed that I was a victim of identity theft, and zeroed out my account. Recently, when applying for a loan, I was told that this bank was still reporting an account that was 90 days overdue. I have written to the bank twice, asking them to correct that item, and have received no response; the negative item is still on my credit report. Please advise the best way for me to have that item erased.
Answer: Contact the credit bureau that supplied your credit report and ask for an investigation of the erroneous item. Your credit report should contain information on how to contact the bureau to ask for such an investigation. Send a letter detailing the incorrect item and explaining why it’s wrong.
The credit bureau is required to investigate the matter and report back to you within 30 days. Chances are pretty good that the bank, once goaded by the credit bureau, will admit that the debt isn’t yours and the incorrect item will be dropped from your report. If not, you may need to contact the bureau’s dispute resolution office for further action. The investigation report should provide information about how to do that.
You also can complain to the Federal Trade Commission, although that government agency is more likely to investigate a pattern of abuses than to weigh in on behalf of an individual consumer. (The commission offers some helpful information about dealing with identity theft at https://www.consumer .gov/idtheft.)
If the bank continues to stonewall, you might consider contacting your congressional representative. Lawmakers are more sensitive than ever to the problems of identity theft, and many are willing to push the FTC to help resolve a consumer’s problem.
You can help reduce the chances of such incidents by calling (888) 5-OPT-OUT to opt out of credit card solicitations. Not all credit card issuers will abide by your wishes, but enough subscribe to this service that you should see a noticeable drop in the number of solicitations you receive. You’ll be asked to provide your name, address, Social Security number and birth date to verify your identity.
In the future, try to check your credit report a few months before applying for any major loan, so you have time to correct such inaccuracies. Smart consumers should request their report annually. That will go a long way toward helping spot any errors or fraud that, left unchallenged, could wreck your financial life.
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at moneytalk@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries.
