Out of Work Man Asks: Should I Pay Off My Mortgage Early?

Out of work should I pay my mortgage?
Out of work should I pay my mortgage?

Nicholas, 60, is a paralegal who has worked for corporations and law firms in New York City for 30 years. Two decades ago, he bought a house in the woods in Pennsylvania's Delaware Water Gap region, commuting two hours by bus each way to his job.

In April 2007, his longtime employer, a pharmaceutical company, cut 10,000 jobs -- including his -- in the first of several waves of layoffs. A month later, Nicholas found contract work with a legal temp agency. Although he logged more hours, his annual income fell from $74,500 to $66,000.

In December 2007, Nicholas' doctor told him he could no longer delay necessary prostate surgery. Nicholas returned to the temp agency in May 2008, but 12 months later, the agency declined to renew his contract. Since then, he has worked on various temporary jobs, but the last ended in April 2010, and he has been out of work ever since. "There are so many unemployed attorneys that they are taking the paralegal positions," he says. "I never thought I'd be out this long."

Nicholas is focusing his job search in Pennsylvania, because New York firms typically want him to work overtime -- which he wouldn't mind if there was a bus that could get him home. "I'm at the mercy of public transportation," he says. (Firms have eliminated car services for paralegals on the late shift, a standard perk when the economy was flush.) Local employers have suggested Nicholas has too much big-city experience and would be bored with their assignments.

He has looked at other professions, applying to substitute teach based on previous experience in New Jersey, where he's still certified. But he would have to take classes to get certified in Pennsylvania (and commuting to sub in New Jersey would eat up his paycheck). He even tried for a position as a veterinarian technician, since he had several years of litigation experience that involved working with vets. He hasn't heard back. "I'm pulling rabbits out of a hat, but they're all dead," he jokes.

Making do with unemployment benefits and savings, Nicholas tries to keep a sense of humor as he sends out countless resumes and trolls LinkedIn for networking opportunities. He takes breaks from the job search by walking his leash-trained, 15-pound tuxedo cat, Skyler. "He keeps the neighborhood in stitches," says Nicholas.

Uncertain about the future, Nicholas is thinking about paying off the $42,500 mortgage on his house, which is valued at about $105,000. He has $35,000 in savings and a life insurance policy he can cash in for $11,500. He also has $109,000 saved in various retirement plans. "I'd be cash poor, but I'm concerned about keeping a roof over my head," he says.

The Answer: In Uncertain Times, Cash Is King

My advice to Nicholas is don't pay off the loan. Though it might make him feel more secure, in reality, it would make his position more precarious. For the unemployed, cash is king. Nicholas needs to keep his assets easily accessible to cover basic costs, especially if his extended unemployment benefits run out before he finds a job. Moreover, home values were devastated during the crash, and it's unclear how close to the bottom of the market we really are, so paying off the mortgage means pouring cash into an investment that could have further to fall.

In addition, Nicholas needs cash on hand to maintain his property. Last year, for instance, he had to replace the roof. If he paid down the mortgage and faced a similar emergency without adequate cash, he'd be hard-pressed to find a lender willing to let him borrow against the home's equity since he's unemployed. He also has annual property taxes and homeowners' fees of about $3,500. When he does find a job, Nicholas may want to establish a home equity line of credit as a low-interest emergency back-up.

"Next month, I will be out of work a year and a half, which is absolutely crazy," he says. "But I know a lot of people in the same boat."

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