Before buying a new home with cash, cover your bases
Dear Liz: I am retiring. I can sell my house and pay cash for a retirement home in the area where I want to live. Does this make sense? I can't see any benefit in taking out a mortgage and paying interest.
Answer: There are financial pundits who believe that you should never pay off a mortgage early or tie up too much cash in a home. The idea is that you would be able to make more in the stock market or with other investments than you would pay in interest on a low-rate, tax-deductible mortgage.
It's definitely true that most working people have better things to do with their money than pay off a cheap home loan. They should be maximizing their contributions to retirement accounts and paying off high-rate consumer debt, like credit cards, before they even think of making extra payments on a mortgage.
But many folks want the peace of mind of a paid-off home by the time they hit retirement, and there's typically nothing wrong with that -- if you've got your other financial bases covered.
You'll want to make sure, though, that you don't leave yourself "house poor," with all your money tied up in real estate and not enough in other investments. A review with a fee-only financial planner before you retire can help you determine whether your plan makes sense.
Joint account holders are responsible for debt
Dear Liz: My daughter's name is on one of my credit cards and on my checking account. In the event of my death, is she responsible for the debt on that card?
Answer: That depends on whether she's listed on the credit card as a joint account holder or an authorized user.
If she's an authorized user, she won't be held personally responsible for any debt on the card. The bill would be paid out of your estate. If she's considered a joint account holder, though, she would be responsible personally for paying the bill.
You should contact the credit card company to find out how she's listed. If it's as a joint account holder, you typically can't have her name removed. If you didn't want her to be responsible for the debt, you would need to close the account and transfer the balance to another card held in your name only.
Got extra funds? Pay off your debt to society
Dear Liz: In a recent column you answered someone who had more money than he or she knew what to do with. Your advice -- to pay off any consumer debt and increase retirement savings if necessary -- was logical.
