I had a great phone call last week from a radio listener. After we talked, I realized there were a bunch of things in the call that are huge lessons for all of us:
The caller shared that she and her husband were two years away from paying off their mortgage. As I was heading for the fridge to pull out some champagne, she volunteered that they also had a $100,000 line of credit.
Stop! What? OK, let’s not kid each other here. That means they’re a long way from a mortgage burning party. The line of credit is secured against their home – it counts! Kind of like saying we’re debt free except that $8,000 Visa balance. Nice try…
This couple is also planning to retire in a few years. But that means no more paycheques and a big switch to a fixed income. What happens then? Most of us drop back to paying interest only on these horrible lines of credit and that means it’ll never be paid off!
Those circumstances describe a large number of people in a very similar situation, so let’s look at three points:
-First – combine the first mortgage almost done with the line of credit. TODAY! Credit lines are variable rate and change every month. The next rate waves are up up and away. Take the amount you’re paying on the two right now and put it into any on-line calculator. In this case, it’s about $120,000. Take a fixed rate less ¾ percent and plug in the current payment to get the term. In other words, don’t take a 10 year mortgage and drop the payments. Take the payment and make the term work.
-Make that payment as high as you can possibly afford and that should give you your retirement date. Because then you’ll be ahead of the game $1500 or $2000.
-Have the payment and term before going to your credit union or bank. Don’t let someone tell you, “well, you should add a cushion of $10,000” or “you should stretch the mortgage so you have some cushion.” Bullcrap – you’re being sold so get out or tell them to get real: on a longer term or more borrowing. That’s NOT what you want and you’re in control!