We have $100,000 in savings.
We have credit-card bills totaling $50,000.
We have been making more than the minimum-due payments each month.
It looks as though we have two choices: One is to sell our home and buy a smaller one for about $180,000.
This would allow us to pay off the credit cards and save the other $50,000.
The other choice is to stay where we are and get a home-equity loan to pay off the $50,000. What do you suggest?
A: Taking out a home-equity line of credit (HELOC), if you qualify, will reduce the interest rate you pay quite a bit — HELOC loans are available at about 4 percent.
Unfortunately, that interest rate is variable, so the cost would rise with interest rates in a better economy.
The interest would be tax-deductible, which might also bring some tax savings.
What it doesn't do is pay off the debt.
If you can comfortably make payments on the home-equity credit line, including some principal, this is probably the way to go.
The monthly payment on a 15-year loan for $50,000 at 4 percent, for instance, is $370.
As an alternative, you might also consider a reverse mortgage.
This would pay off the credit cards but require no payments until you no longer live in the house.
If you decide to move to a lower-cost house, I suggest you do it from a different mindset than just "trading down."
Look for a home where you can "age in place," one that will meet your current and future needs as you age.
This may involve eliminating stairs, yard care, etc.
Lots of people do this, and they also happen to save some money in the process because aging in place usually means fewer bedrooms, fewer square feet of house and a smaller lot.
Questions: scott@scottburns.com
Source http://seattletimes.nwsource.com/
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