I am early fifties and earn $80k a year. Spouse is late fifties and was laid off in January. He is receiving unemployment but that runs out around mid June. I'm getting very worried that he still has not found a job. We have a $365k mortgage left on the house which is $2900k a month at 6.5% interest rate. House is now estimated at $960k. If we pay this mortgage off, we would have a $175k cash cushion, emergency cushion.
This way I can sleep at night over the next year or so just having to pay taxes, insurance, utilities, food, other basic expenses on my salary alone without the mortgage payment. Yes maybe he can find a job outside of his field if he cannot find one in his field. The problem is that he can be pretty stubborn about taking a job he feels is beneath his experience. I know, that is not a good attitude to have but it is what it is. I'm worried he will continue to just drag the job search on and on looking for the ideal job and then we are eating into savings. This is where I am thinking just pay the loan off. I'm waking up a lot around 2-3 am very worried most nights.
The house is in a nice area in a larger metro. It's a historic home in a neighborhood with great schools so the house should hopefully reasonably appreciate over time if we stay put for a bit. Houses sell rather quickly in our area. If his career prospects don't improve much, I am thinking we would have that option to sell the house next spring, cash out, and downsize into something like a townhouse or apartment at some point. It is just the two of us. Maybe we would just stay in the house for a few, several more years if it continues to reasonably appreciate.
I'm feel paralyzed with fear and anxiety. It's scary to think of chucking that money to pay off the loan but it's also scary to think of me trying to carry that mortgage on my salary. Actually, I can't. We would need to dip into savings each month.
Any advice appreciated. Sorry if I left out important info. I'm in a panic fog right now and not thinking clearly.
Spouse laid off, should we pay off mortgage?
byu/scarlet-in-the-sky inpersonalfinance
Posted by scarlet-in-the-sky
33 Comments
Where are you pulling the money from to pay off the house?
Sounds like you need marriage advice. No touchy savings if he’s refusing to get a job. Any sort of job.
No, you shouldn’t get rid of the bulk of your liquidity to pay off a debt after job loss.
Why do you have a half million in cash though?
Can he do any kind of consulting work? Sounds like early retirement is out of the picture.
However, just as a warning – be prepared to draw a line in the sand when it comes to jobs he thinks are beneath him. It sounds like you’re not in a position to be a sole breadwinner, and I guarantee you’ll start resenting him very quickly if he keeps up this pattern after the unemployment runs out. Eating through savings is already an emergency, and the fact that he seems to prioritize his pride over your anxiety warrants a serious conversation.
Is the $175k cash cushion above and beyond retirement savings? If so, how much currently in retirement savings (combined between you both)?
If retirement savings is healthy and you can payoff the house with $175 emergency fund remaining in paying off the home.
I’m also probably not going back to career type work in my late 50s.
I would not pay off the mortgage. Use the excess savings to pay the monthly mortgage. Try this for a couple of years so your husband has time to look for another job. Focus on income sufficient to make the mortgage payment. That way your salary can be used to keep putting into retirement.
You are paying about $23k in interest per year. At 6.5%, I would pay it off. The job market is bad now and at his age it will be hard to find a job with a high salary.
365k is over 10 years of mortgage payments even if it earns no interest whatsoever. Just draw from it to make your mortgage payments until he finds a job.
What was his job prior to being laid off?
$365K is a lot of money to dip into! I wouldn’t do it, even with $175K left. You don’t know what the future holds. But you two definitely need to sit down and talk about this because it’s really affecting your mental health and your marriage.
At your age and with unemployment ending soon, this is less about maximizing returns and more about reducing long term risk. A 6.5% mortgage is a guaranteed cost, and most money market accounts are not beating that after taxes. If paying it off still leaves you with $175k in cash, that is a strong safety cushion and removes a $2,900 monthly burden you already know one income cannot comfortably carry. The bigger concern is whether your spouse will actually replace that income soon, and late career job searches can take much longer than people expect.
The money is probably making more money in the market than the 6.5%, you’d be better off just pulling out $2900 a month then paying it all off, that way the other $365 can keep growing
Terrible idea to pay off. Maintain liquidity.
How much runway is $175k without the mortgage? What other investments do you have?
6.5% is high enough it’s worth paying off…but you will have less time until you run out of money.
So you need to decide if it’s worth the risk of your husband not finding a job before the money runs out.
You need solid options from a financial advisor. Find a fee-only fiduciary advisor, say at [NAPFA.org](http://NAPFA.org), or garrettplanningnetwork.com.
Options to consider:
1) paying off the mortgage = no monthly payment but worries about small cash reserve
2) various investment options to offset the mortgage with monthly dividend payments from the cash reserve
2) various annuity options to guarantee monthly income for many years or even life – like a personal pension.
If it’s just the two of you and the home appreciated to nearly 1M, and you owe less than 400k, why not sell and downsize or move into a cheaper 55+ community? Are you emotionally or logistically tied down to this place? Is it worth your mental sanity to keep it if things don’t work out with his job hunt?
You can toss those gains into a brokerage and pick something like VTI/VXUS or VT, or even leave it in freaking SPAXX earning 3% if you use Fidelity.
You say you have a 365k mortgage at 6.5% and that you would have a 175k cash cushion if you paid it of.
So you actually have a 540k cash cushion.
Where is it? Is it in stocks? Cash savings? Retirement?
*being able to pay off a mortgage* is a different position than just being in the cash flow red because of a job loss.
540,000 x 4% =21,600 in interest that 7 months of your mortgage. May be able to get a higher rate with that kinda money.
That should help. You still have the money and now all you have to worry about is the other 5 months.
I don’t think the problem is whether or not to pay off the house. And paying it off isn’t going to solve the actual problem.
I think the problem is you are terrified about your situation, and your husband is not. You all need to sit down at the kitchen table and get a plan. You are having anxiety and not sleeping while he is deciding what jobs he will and will not take. You need to get on the same page or it’s not going to work no matter what you do.
The reality is it is a rough job market. For almost every field. It is taking 6-12-18 months or more for people to find work. This is the reality you need to be prepared for. He probably needs to take anything he can get, work a side job or two, do consulting, etc. or he needs to drive uber, sign up for Instacart shifts, anything that brings money in.
You need to map out a budget of what one income looks like and what the deficit is so you can make a plan. Getting this together may help him get over the “I only want to take jobs in my field” thing.
Maybe the plan looks like downsizing homes into something paid off. Or maybe it does look like paying it off.
But until you are both on the same page of being terrified together, or having a plan that you are both working towards – you are not going to make it through this.
Now as far as the actual question – you are pulling out of savings to pay it off all at once or a little at a time. You would save on your interest, but lose out on whatever that money is earning for you. I think I would prefer to have the cash not locked up in the house. $2,900 a month pulled out of savings is a really long runway. Anything can happen (worst case scenario is another financial emergency or you lose your income source). The other side is the market can tank, and the housing market can tank. Being paid off gives you stability in that. The difference between 6% interest and conservative returns isn’t all that huge.
But I think you really need to have a tough conversation to get on the same page and to get a plan together. Once you do that it will be more clear what the path forward is.
It maybe worth looking at a 15yr refinance or if you’ve made a bunch of early payments you can look at recasting a loan. I just refinanced a 7.375% 30yr into a 6.04% 15 year. Not sure if it would make sense for you tho. Recasting may lower the payment but keep the interest the same.
You’re freaking out and not thinking straight. If you can afford to pay off the mortgage now, you can afford to pay the mortgage for years (over 10 years if you didn’t have other expenses even with factoring in everything else you’re fine for years). Leave the money in a high yield savings account, tighten your belts a little, and pull down as you need.
By not paying off the loan, you carry more liquidity incase something else comes up. If you pay off the loan you‘d have to get another loan or sell the house (and find another house and possibly a loan) if you were in desperate need for money.
The mortgage keeps you liquid and gives you more options. Pay what you can from your salary and pull down from the money you’d use to pay off the mortgage as needed. Your spouse should keep looking for a job, pick up side/consulting work, or pick up a lower paying job to make ends meet until they find something better. But regardless the interest isn’t going to kill you at 6.5% (and you can make it hurt less if your savings is earning high yield savings rates or better). That interest buys you more money that should be making you less stressed not more.
Cash is king. Becoming less liquid during a job loss is not usually a great idea.
sorry to hear of this very stressful situation! Make sure to take care of your health also! 🙂
Use the money to continue to pay the bills or at least until he can find another job.
If he doesn’t find another job in a year or so you may consider selling and downsizing.
And you can use the proceeds to buy your next place hopefully in full.
Generally it’s not a great idea to deplete almost all your savings when one spouse isn’t working. Especially so close to retirement.
This is where finance gets personal.
Having a paid for house is about peace of mind.
It rarely makes sense mathematically. Though, in your case a guarantee 6.5% return is pretty nice.
You will still have plenty of liquidity after the house is paid off assuming you can get by or early get by on your salary.
Me…I’d be debt free by the end of the day.
Good luck.
You are not thinking clearly, probably due to the stress of your spouse not working.
If you will have $175k in cash-like after paying off a remaining mortgage balance of $365k, you have 175+365=$540,000 in cash-like now.
Rather than use that cash to pay lots of mortgage payments ahead of time by paying off the loan, why not conserve your cash for a while until your situation stabilizes. 6.5% interest on the mortgage is in the grey zone where I is not clearly better to keep the mortgage, but not so high that you re certain that paying it off is the better choice.
Your wages plus your investment income does not have to cover your mortgage payment. Just use some of your cash to pay the mortgage each month.
Don’t rush into making big changes you might later regret. I recommend you wait at least 3 months and then review your situation again.
Is your husband thinking about early retirement? Are your two on the same page for your longer term plans? You do not say anything about your other assets so it is not clear whether you are financially independent and could retire today.
No. When income is tight, cash is king. Keep your Emergency Fund to help pay the mortgage, but..if you have not yet, slash everything else to the bone NOW…cancel subscriptions, eat frugally…no eating out, no alcohol or drugs, etc. They job hunt. You start back up plans.
The last thing you should do is deplete essential capital. It’s better be stuck paying the mortgage as is for another 12-18 months while they find work instead of running out of cash.
Reading everything it seems like you are determined to pay it off. I everything you respond to circles back to paying off your house. At this point just talk to a financial advisor with your husband. Hopefully if nothing else they can be the bad guy and push him to get a job.
If you don’t pay off the mortgage, what will you use the cash for?
You can’t eat your house. The cash that you would use to pay this house off would be sufficient to pay your monthly mortgage payment for decades. That gives you plenty of runway to get new employment and get settled back into the swing of things.
So your spouse lost his job and you want lock away the majority of your liquidity?
That is an emotional response to reduce stress but worsens your financial situation. It is not based on financial logic.
You need to maintain liquidity.
So, I’m having a bit of trouble following along here because there seem to be different amounts, tossed around. But assuming you have $614k (I believe you said that’s how much there is at some point) in a money market account making 3% interest, that’s about $1500 a month in interest. That’s half your mortgage. On $255k (I think that’s what you’d have left) you’d make about $600 a month. Do you see why using the money is a bigger problem?
I believe you said you can carry the mortgage but it is scary. If you manage not to spend that money it’s $18k a year of money for doing nothing and you’ll get more interest every month from compounding.
Having that extra income from the cash lets you ride things out longer and potentially allows you to pay the mortgage easier without serious reducing the amount of money you have on hand if you’re frugal.
Good luck.