Answers to your crisis questions

Question: My wife and I have a $100,000 balance on our fixed-rate 5.5% mortgage. We also have $80,000 in mutual funds in a taxable account that's down 50% this year. Should we sell the funds to pay off the loan? Then we wouldn't have to worry about losing our house if we got laid off. --George P., Hopewell Junction, N.Y.

Answer: I salute you for trying to guard against a financial setback before it occurs. But your proposed solution probably isn't your best choice. First, you'll likely earn a better return in the market, says San Diego financial adviser Jean Sinclair. Assuming you itemize deductions, your 5.5% mortgage costs you less than 4% after tax. Although stocks have been rotten lately, from today's depressed levels you ought to easily beat 4% over the long run.

The second reason not to pay off the mortgage: If indeed you lose your job -- and you run though your cash cushion -- it's easier to sell stocks than to pull the money out of your house.

A better way to address unemployment fears, says Sinclair, is to take a hard look at your spending. If one of you were to be laid off, what could you cut back on? Doing this exercise now, before any emergency pops up, can help keep worries under control.

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