Less pay, same mortgage payment

A pay cut has made the Monroes' big mortgage less affordable.

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By Karen Cheney, Money Magazine contributing writer

Jennifer and Carlton Monroe, 34 and 38, with their 2-year-old twins.
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(Money Magazine) -- For Jennifer and Carlton Monroe, 34 and 38, their home is both their castle and their prison. They bought the 1920s Craftsman in 2005 for $280,000. But it needed work -- leaving them today with $170,000 on a home-equity line of credit (HELOC), along with $222,000 on their mortgage.

Last year the house was appraised at $440,000, but prices in the area are down 8% this year, per the National Association of Realtors, so the Monroes are treading water.

Building equity won't be easy for the couple, parents of 2-year-old twins. Even on last year's $144,000 income, they felt strained financially. And this year Jennifer, a contrabassoonist with the Cincinnati Symphony Orchestra, took an 11% pay cut.

Meanwhile, Carlton, a private-school music teacher, has been considering a public-school job that would eventually pay more -- after three years part-time, for 30% less than he makes now.

To top it all off, the rate on their HELOC is poised to rise. The Monroes need to find a way to make their house less of a stress, and fast.

The solution

1. Replace lost income. The Monroes should consider ways to make up for Jennifer's pay cut, says financial adviser Dawn Brown. Jennifer could give music lessons. And Carlton thinks he could get part-time work as a church music director, earning $15,000.

2. Put off the job change. Given their mortgage debt, the Monroes can't afford another pay cut right now, says Cincinnati financial planner Scott Barbee. So Carlton should hold off until he can get a full-time offer at full salary.

3. Feed the HELOC. While their mortgage is fixed at 5.35%, their HELOC is variable, at prime plus 0.5%. They've been paying interest only, but they need to pay principal, given the interest-rate risk. By scaling back phone/Internet service, discretionary spending, and home improvements, they can redirect $12,000 yearly and build equity faster.

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