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EXTRA CASH The No-Problem Problem

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By ILYCE GLINK Tribune Media Services

The Tampa Tribune

Published: November 9, 2008

My wife and I are 65. I work full time and my wife, part time. We'd like to sell our house because it's too big for us. But we know this is not a good time, so we're waiting for the market to improve. In the meantime, we're paying an extra $500 a month on our mortgage. We have a balance of $155,000, and the house was appraised at $240,000 in March.

Our income is a little more than $200,000 a year, and we are well set for retirement, even considering the hit our retirement 403(b) and 457 accounts have taken lately. Would we be better off to invest the $500 per month in something other than equity in our house, considering the condition of the housing market?

As long as the interest rate on your mortgage is low, you might as well invest the extra $500 elsewhere. (If your rate isn't low, you may consider refinancing at some point - rates are low and may get even lower before the year is out.)

I suggest opening a brokerage account and investing your $500 per month in a super-low-cost index fund of some sort. Now could be an excellent time to buy index mutual funds and hold them for the long term, especially since you're not risking cash that you actually need to live.

Some investment advisors, however, are cautioning people who are close to retirement to keep their money in a safe investment that will not fluctuate with the market.

My 84-year-old father, who is not in great health, bought into a senior living community several weeks ago, just before the market crash. He must pay the balance of what he owes, about $200,000, by the end of his first month, which is within a week.

He has all of his investments and IRA in the stock market. They were worth about a million dollars, but are now worth 40 percent less. He also has a condo in Florida that is on the market for $90,000, but is not likely to sell anytime soon.

He is reluctant to draw from his portfolio while it's at its lowest point ever, but needs to come up with this cash.

I have asked him if he thinks it a good idea for me to use my existing home equity line to help bide some time for the market to recover. I have a $100,000 line of credit that I would probably draw about $50,000 on for his purchase. He would then pay down my line of credit monthly. Is this a bad idea?

It's a generous offer, but before you tap into your home equity line of credit, I think your father should go back to the senior living community and ask them if they can give him more time to come up with what he owes. Surely, he will not be the only retiree who has seen his net worth slashed by 40 percent. Liquidating his investments this week probably would not be a great idea.

He should see whether the senior living community can create payment terms that work better for him. If the community cannot be flexible, then he should tap whatever resources he has. If you can draw down $50,000 or more on your home equity line of credit, that would help. But it would also put your credit in danger if your father doesn't pay the bill on time each month, if you can't afford to make the payments.

If he can afford the payments and will make them, the plan is workable. He will need to adjust his will, however, so that if the debt is not repaid before he dies, his estate will pay off the loan as part of the bills that are owed before funds are distributed to his heirs. Your father could also sign a promissory note agreeing to repay you the money. You should talk to him about how to document that loan so it makes sense to his future executor and his other heirs.

Write to Ilyce Glink at Real Estate Matters Syndicate, P.O. Box 366, Glencoe IL 60022; or e-mail thinkglink@aol.com.

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