Ask Money Man

Ask the expert all of your money related questions. Email your questions to and Money Man will email his reply. Questions of general interest will be posted on this web page. Your name will not be printed unless you say you want it printed. Your identity will always be protected.

Dear Money Man:  

Is there some way to use 401k money to make a sizeable down payment on a
house you would like to buy.   I m in the position to roll a company
plan over
to my new employer or something else.



You can roll over your 401k money into an ira account. Then you can convert the ira money into a Roth ira. If you do this, your adjusted gross income must be less than $100,000 for that year. For example, if you make $75,000 this year, you can only convert $25,000 this year, but you can convert more money on 1 Jan 2001. Of course, you must pay taxes on whatever you convert. When you withdraw it from the Roth ira, you must pay taxes on the interest, but it will be in the Roth ira account for such a short period of time, that the taxes on the interest will be virtually nothing.

Dear Money Man:  

I just stumbled across your web site, and I am following
nearly all of your advice.  Used car, grad school, no
debt, etc.
But, I'm in the process of buying a $64500 home.  I have
enough money in the stock market to pay cash for it, but
instead I have opted to put down 20% (to avoid PMI) and
get a 15 year ARM at 7.5% for the rest, with the plan of
prepaying the mortgage off by the time the rate changes
in 7 years.
If I can get 10% or more in the stock market (and I can)
is it still to my advantage to pay cash for the house?


In your case, it makes sense to keep investing in the stock market. Your case is different, because

1) You sound like you are going to have enough money for emergencies. You indicate this when you say you are going to put down 20% and pay it off at 7 years.

2) You are looking at your investments in the long term, in this case 7 years.

3) You sound knowledgeable enough to avoid pitfalls, like high priced brokers.

Of course, I must give you the usual warnings:

1) Pay your credit card bills on time.

2) Use no load stock funds.

3) Avoid short term thinking that will make you sell whenever the stock market goes down, like what just happened in October 1999. You will avoid "buy high, sell low."

4) Take advantage of tax breaks, like the 401k plan.

Good luck with your investing.

Dear Money Man: 

What a GREAT page! Thanks so much for your service. My husband and I want to
pay off, and eliminate 3 Credit cards. $3,900 at about 27% (ouch!), $8,500
at 12%, and $8,000 at 17%. Itís driving us nuts to be losing so much in
interest each month. We have been able to pay a little more than the minimum
payments required, but at this rate, it seems that it will take us forever
to pay them off. We just moved into a new home in March, so were are getting
all kinds of Home Equity Loan advertisements to consolidate out debt. Some
of them even saying "No Equity Required". It seems to us that if we had them
all consolidated into one loan at a lower interest rate, we could pay what
we are paying now each month and get it payed off much sooner. Would this be
a good idea for us to do? Can these lenders be trusted? Or would it be
better for us to just go through our local bank or credit union? We greatly
appreciate your time and any suggestions you can offer us. Thanks!



According to the 1997 Your Federal Income Tax (Publication 17), your mortgage interest will be fully tax deductible as long as your new mortgages (or home equity loans) in any one year do not exceed $100,000 and your total mortgages do not exceed the fair market value of your home. These lenders probably do not care about deductibility, they just want to make a loan, so verify the deductibility by estimating the fair market value yourselves. If it is not fully deductible, it may still be worth it, if it reduces your interest rate. Also, consider your bank and credit union if they offer competitive rates.

Once you consolidate your loans and start saving money, use the money to pay down the loan. Avoid spending it. Good luck.


Dear Money Man: 

When a bank sells your mortgage to another institution can the second
mortgagee change the payment requirements?  My mortgage changed hands
effective 11/01/1999.  On the 7th of November they called me re my payment
not yet being received (my cancelled check posted on 11/12).  They called me
again today ( 12/8/1999 ) and today asked why they have not received it.
The gentleman told me this was the second month that I have had a late
payment.  He said "There is no 'grace period' with 'XYZ Mortgage Corp. .
The pmt. is due on the first and late as of the second."
Do I have any rights here?  I have been living here paying my mortgage for
15 years (different banks, never a problem).  I went over my Note and it is
the same for two other mortgages I had in the past.



When a mortgage company buys a mortgage, they are obligated to follow the deed of trust note. To better understand your situation, I looked at my own deed of trust note. According to this document, the payment is due on the first of the month, but there is no penalty until 15 days later. I quote the following:

' the holder of the note may collect a "late charge" not to exceed four cents for each dollar of each payment more than 15 days in arrears ...'

If you have a similar statement in your deed of trust note, then your mortgage company can charge you only if you are at least 15 days late. When your mortgage company called you on the eighth of the month, I suspect that they were bluffing you to send in your payments earlier. If you really do have the 15 day grace period, then the next time they call you, ask them if they are able to give you a late charge (and see if they give you an honest answer).

If you want to be certain about when the late charge comes, then you should hire a lawyer to help you interpret the deed of trust note. Unfortunately, the price of a lawyer far exceeds the mortgage late charge.


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