Setting Her Up for Life

Jenny lost her husband about a year and a half ago. She earns $2,600 a month, receives a pension and Social Security, and has a $55,000 mortgage. She has $140,000 in investments. Should she pay her house off?

QUESTION: Jenny in Grand Rapids lost her husband about a year and a half ago. He had life insurance, which Jenny hasn’t used. She earns $2,600 a month, receives a pension and Social Security, and only owes on a mortgage for $55,000 at 4%. She also has $140,000 in investments. Should she pay her house off?

ANSWER: If you didn’t have a house payment, you could save anywhere from $300 to $500 a month. In about a year of that, if you did pay off your home, you’d have about $100,000 left after reinvesting that monthly money as well. I would pay it off tomorrow. Let me tell you how I decided that. You need to know how I did that, rather than paying it off because I said so.

You’re still going to have plenty of money, you are living on your income and not touching the money anyway, and this gives you an added level of peace and security. It puts you in a position where you start saving again, which I think will be good for you long term.

The $55,000 that you use up here will be back in about six years at the rate you’re going, if you invest $400 or $500 a month once you get your emergency fund finished.

The other way I decided that was to ask, if your house was paid off and you had $100,000 in the bank with a paid-off house, would you borrow $50,000 so that you had $150,000 in the bank? The answer is no, because you don’t want the risk or the house payment. It’s the same situation in reverse.

That’s a decision-making tool you can use sometimes by doing something in reverse. Also, are you all right if everything goes bad after you pay off the house? Answer, yes.

Your husband did a great job of setting you up. I wish I could get more people to do as good a job as he did.

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