Feedback on Your Questions

Over the next two weeks, we’ll answer some of your e mail questions that are certainly topical and questions that thousands of others have, as well:

Your question: I enjoy listening to your program on 1150. We may have a very large amount of money coming in soon. My question is: Do we buy a place and pay off the mortgage completely, or put some of the money elsewhere?

First and foremost, remember that I only ever give feedback on what I would do. But there isn’t a lot to go on here. I assume there aren’t credit card balances, lines of credit, or car loans. If there are, consumer debts are first, paid off from smallest balance to largest.

Then I want you to have a three month of income emergency fund in a simple savings account. That’s not to be touched unless it’s a real emergency.

Next, make sure you have your RRSP, or Tax Free Savings Account, maxed for the year, depending on your tax bracket, etc.

When you ask about buying a place, I’m guessing you mean investment property or your own home. If it’s your place – yes. And you can pay cash for it, which is the dream of 99% of home buyers. Do it! There is nothing like a free and clear house.

If it’s investment property, the hard rule is to have at least 50% down. Then you are in a position of strength, and not risking it all, AND the 50% down means you’ll always be cash flow positive.

Your question: My investment of $30,000 recently expired, and is now sitting in the bank at 1%. We do not want to tie it up again as I am in my late 70s, and want it available if needed. Could you advise us as to what is our best option? We are on a limited budget and this is our savings. We do not have any mortgage and we have a line of credit of $40,000, but it was for a family member, who is also paying it. Our monthly income is approximately $2500.00.

While I’m not an investment advisor, you don’t need one. That $30,000 is almost all of what you have. Take the lousy 1% the bank is paying and know that it’s risk free. Rate = risk, so a higher return means you’ll have to take on more risk. And you’re late middle age, so it’s not worth it.

I don’t like the $40,000 line of credit at all. It’s a floating interest rate, and that’s already hit you for half a percent and climbing. I like it even less that a family member used your credit to borrow. Today they may pay, but what happens when they don’t? And please don’t kid yourself into thinking that won’t happen. Please!

You need to protect yourself first, because nobody else will do it for you. Do two things right away:
-Have a heart to heart talk with this relative and get them to refinance it out of your name or pay it off – NOW.
-Immediately move your $30,000 nest egg to a different bank than the line of credit is at. All the documents you have signed state that they can just take your investments and use it to pay off the debt you owe them – period. Do not risk your entire life savings on a relative. Never, ever. I won’t even talk about the big problem that this relative should never have come to a late 70s person to sign a loan and that you should have said no.

Go to another bank today and transfer the savings. Then have a face to face with your relative that the time to just make interest-only payments is over. Please!

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