The Moneyist: I’m house-rich and cash-poor. Should I refinance my house and set up a joint savings account with my husband? ‘I can tolerate him for 7 months — at the most.’
My husband of seven years owns a home in Minnesota and has a mortgage. I own a home in Florida with no mortgage. We have no savings or retirement accounts.
Should I pull my equity from my home in Florida to start a savings account for us? I’m working and my husband is retired. My house is worth $216,000.
We live well enough together, but I’m worried for our future. Other than the snowbird months, he has no intention of us living together 24/7.
I can tolerate him for seven months — at the most. I need five months off. But it works for the two of us. Thoughts?
House Rich, Cash Poor
Dear House Rich, Cash Poor,
Congratulations on paying off your home.
I’ll start with the personal, and then move onto the financial. I am obviously not familiar with the history of your marriage, or when you each bought your homes. But as a matter of principle, taking money that belongs to you alone out of anywhere — a house, a bank or the stock market — and putting it into a joint savings account is a bad idea.
Refinancing your home after working so hard to pay off your mortgage — and in an environment where interest rates are rising — is also a no-no. “Mortgage rates are likely to push toward 5% before the end of the year, with lenders anecdotally reporting quotes around 4.75% for the 30-year fixed rate,” George Ratiu, the manager of economic research at Realtor.com, said recently.
Further down the road, you have other options open to you if you need money to live on. Those include reverse mortgage, which is especially attractive for seniors who are house-rich yet cash-poor. In this case, instead of the borrower making payments toward the mortgage, the opposite happens — the lender makes payments to the borrower, and the mortgage gets bigger.
In this case, the interest is added to the loan principal. “Typically, no payment is due until the borrower dies or permanently moves out of the home,” writes MarketWatch’s Tax Guy, Bill Bischoff. “You can receive reverse mortgage proceeds as a lump sum, in installments over a period of months or years, or as line-of-credit withdrawals when you need cash.”
In the meantime, automate your savings and make a household budget. Assuming you don’t have a 401(k) available to you, consider a Roth IRA or a traditional IRA, or variable annuities. You contribute after-tax dollars to a Roth IRA, and typically withdraw the money tax- and penalty-free after the age of 59 ½. Traditional IRA contributions are made with pretax dollars, and taxed upon withdrawal.
What you suggest is especially ill-advised, and not only because you would likely get a paltry 0.50% on a savings account, and be waiting quite some time for banks to pass on the Federal Reserve’s rate hikes to their savings customers.
It’s grand that you have achieved a mutually agreed-upon balance. Every relationship is different and special, and works on its own set of rules. Still, you are better off maintaining your financial independence and keeping your assets separate.
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