That being said, prepaying on your mortgage should be part of your larger financial plan. If you don't have a retirement savings plan on track and if you have high interest rate debt -- from credit cards or other expensive loans -- you should be paying those off first because they cost you more in the long run. Then, once the rest of your finances are in shape, start contributing that extra money toward your mortgage.
Sharie in Brooklyn, N.Y., asks: My husband was laid off six months ago. We had enough of an emergency fund to cover six months and now the six months are over. I work full-time and he is doing some contract work, but we aren't making enough to pay all of our bills. Which should we stop paying first? We looked into refinancing our home. We've never had a late payment and our credit is very good (for now). Credit-wise, we were approved, but the house did not appraise for enough.
When you can't afford to pay all of your bills, you pay the ones for things that you absolutely need in order to live. So you pay your mortgage or rent because you need shelter. You pay for necessary utilities like electricity and heat, but you cancel the cable. You pay the car payment so you can get to work. Everything else -- including credit cards -- comes last. You of course want to make every effort to pay them, but if your money doesn't stretch, you put them on hold. That said, I'd pick up the phone and call your lenders if you haven't already. (Even if you have, do it again.) There are a lot of people in your same situation right now, and more and more the lenders are willing to work with you, particularly in situations like yours where there's been a layoff.
One final note: The president's Making Home Affordable plan includes help for people who owe more than their homes are worth, as long as your first mortgage doesn't exceed 105 percent of the current market value of the property. Your loan must be owned or securitized by Fannie Mae or Freddie Mac, you must be current on your payments, and your income should be enough to support the new, refinanced payment. For more information, go to http://makinghomeaffordable.gov.
Finally, Dan in Clearwater, Fla., writes: I retired in 2007. I have two 457 retirement plans. I took money from one account to pay alimony to my former wife. My question is: If you are taking withdrawals from a retirement account and it lost money, can you claim a loss on your taxes?
Dan, unfortunately, it may not be possible to do so. Typically, you can only claim a loss from retirement accounts with a Roth IRA because you didn't get a deduction when you put money into the account, says Ed Slott, an IRA expert. With a 457, which is what you have, and with IRAs and 401(k)s, you usually can't claim a loss because you received a deduction when you made the contribution, and your money is now growing tax-deferred.