Need Advice-should I Cash Out My Traditional Ira?

marincountyowner

LoanSafe Member
Hi I have posted before and my info is below my signature. I have a modified loan but it is going to keep going up until it is totally unaffordable for me. I cannot expect any raises at work as I run a struggling non-profit. My realtor does not think now is a good time for me to sell.

This is what she said "Interest rates today are 4.125 (with no points) and they are expected to go up across the board. Maybe once the market values increase you can apply for an equity line of credit???

Borrowing is never a fun solution, but perhaps it’s your only solution, and better to borrow against your home than your retirement account, and definitely credit cards. Home prices are also expected to go up. (That’s good news.) Forecasters are predicting another 12% increase. You will make money on your home if you keep it longer."


I don't understand what she means about borrowing more. If you borrow more, don't you just owe more? This is a totally confusing concept to me. Should I just cash out my IRA ( take the penalties) and use the money to supplement my income so I can pay my mortgage until my child turns 18? Or should I use that money to buy down points and refinance when the interest rate goes up again next year? Or should I do an interest only loan or a 5/1 ARM in a few years? I am so confused.
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Hello,

Yes, if you refinance you will be borrowing more and at a higher rate. I think your Realtor should stick to selling houses.

The problem is your home is too expensive for your salary alone and too much of a mortgage. You do not want to refinance just yet because even if you do, you won't afford it after. Your current rate is excellent even at 3 and 4%. At 5% is when I would really worry.

You either have to really cut down on all expenses, sell your home, refinance later or get a loan modification after it gets to 5%.

What's your main goal with the home? Just to have it until your child turns 18?
 

marincountyowner

LoanSafe Member
Hi Moe,

My realtor is also my cousin and she knows how much I love my home and how hard it was to find it. I'd like to hang on to it until my son goes to college because it is nice and we like our neighbors and I don't want to disrupt his life anymore than I already have with the divorce. I understand that I should just wait until it gets to 4% or 5% to refinance or sell. I was just wondering about the IRA. Seems like it could keep me in the home a few more years and that the return on the investment of my home is just about as good as any returns on the IRA. For example when my son turns 18 I could sell and move someplace much smaller ( and without a big dog like we have now) etc.... and make a nice profit.

The home is 39 % of my income when I do that HAMP worksheet ( based on gross, not net, income). Too much, yes, but not totally crazy is it?
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Hello,

OK, I understand and no, a 39% housing ratio is not bad at all.

Based on what you have stated, a refinance will not help you at all. If you need extra cash and cannot make it without cashing in the IRA, then you have to do what you have to do.

As you know, these are all calculated risks and if you are willing to take the gamble on your IRA and value of your home, then sure, go for it. Just please remember that investments are in no way guaranteed and anything can happen between now which may include your home losing value or rising in value.

Life is like a box of chocolates, you never know what you are going to get ;)

 

pennygram

working for consumers
STOP! You are trading protected money for unprotected assets. Never a good idea. I have seen too many people cash out everything they have to try and keep their home only to still lose in the end. Keep whatever you can at this time.

First apply for a new loan mod and see what happens first.
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Pennygram, I have witnessed that probably a few hundred times in the last 7 years and I would safely say that 90% of them lost their homes and money in the end. So yes, this is not a great idea. But I have also counseled these same people with similar advice to yours and almost each time, the people did what they feel they needed to do based on their families.

When children, schools and homes are involved, it makes people make decisions for the kids rather than the making the best financial choices for their own future. I'm actually in a lease scenario now where I'm at 70% DTI on my housing ratios so my oldest son can finish high school. I promised him I would and gave him my word. We are hurting big time, but we have very little options and nowhere to go nearby to solve this money crisis. Our only options are to ride it out or move hundreds of miles away which may affect our 17 year old big time.

This is part of being a parent and sacrifice. Sometimes we are willing to sacrifice ourselves for the sake of our children. Often it is not the wisest of financial choices, but a good family one.
 

pennygram

working for consumers
Moe, completely understand your choices and respect them. We all do what we have to do that is right for us. Only having a clear understanding of the options and choices available can people make intelligent or heartfelt decisions. Nothing may change but at least they will not sit back in the future and say "if I had only known"....

Today I sent out my last car payment. Hubby and I argued over filing bk 7 and letting these cars go back in 2010, 2011 and he was 100% against it so we plowed on. We reviewed our last few years and he finally said it was a bad decision because we spent over $109,000 since 2010 on these vehicles that are now worth $30,000 if lucky. This was clearly wants and pride over common sense.... not to mention the 4+ years of struggles that gave me an ulcer due to the stress. BUT we made it..... now if only I could convince him on cable vs hulu + netflix....

I have sat here yesterday and today with such relief that it is finally over... my home is secure with a reasonable modified mortgage, I am semi debt free, hubby and I are on the same page. Life is finally good again... and lessons learned from hard knox school....

I wish you the best in 2015 and if I can help you in any way please let me know. pro active pro se @ the g anytime...
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Thanks pennygram and I respect yours as well. You have been a great help around here. I value you very much :)

I have very little monthly bills, but just live in a high cost rent and homeownership area. I was making more money four years ago. But clearly I was not thinking ahead. My goal is to get to where you are at with my finances within 1.5 years by moving to a low cost housing area.

I wish you the best of blessings in 2015.
 
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