DEAR BOB: Our home has a mortgage. After reading your many articles on the topic, we are convinced we should transfer the title into a joint living trust to avoid probate costs and delays for our two daughters after we are gone. But our mortgage has about 12 years remaining. Can we create a living trust although our home has an existing mortgage? – Tony C.
DEAR TONY: Yes. An existing mortgage won’t prevent you from transferring title for your home into a revocable living trust. Although it is highly unlikely, if your mortgage lender notices the title transfer to your living trust, just supply the lender with a copy of your living trust showing you are the beneficiaries.
Purchase Bob Bruss reports online.
Your mortgage lender cannot enforce the due-on-sale clause when you transfer title into your living trust. For more details, please consult a local real estate attorney.
NO TAX ON BORROWED FUNDS
DEAR BOB: We own a free-and-clear rental property, worth around $600,000. But it needs fix-up work. If we borrow $100,000 on an equity loan, will that money be taxable? – Ginger W.
DEAR GINGER: No. Borrowed money is not taxable, regardless of what your purpose might be.
There is a very good reason. You have to pay the borrowed money back.
Why not borrow more of your equity and spend the extra non-taxable funds on a trip around the world? Or a new car?
DON’T BORROW A SMALL REVERSE MORTGAGE AMOUNT
DEAR BOB: Our home, worth at least $500,000, needs about $60,000 of repairs. As we are senior citizens on a fixed income, we can’t qualify for a loan except at one of those expensive finance company loan sharks. However, a reverse mortgage company will gladly loan us the $60,000 in a lump sum with no repayment required as long as we live in our home. But the up-front loan charges are about $5,400 to borrow $60,000. Doesn’t that seem rather high? – Hugo R.
DEAR HUGO: Yes. If your home is worth $500,000, why borrow only $60,000 on a reverse mortgage? Depending on your age, you surely can qualify for a larger reverse mortgage credit line. Or you can select lifetime monthly income.
Senior citizens often complain about the high up-front reverse mortgage loan fees, as in your situation. Your up-front loan fees will be about the same regardless how large your reverse mortgage is. Shop around to obtain the maximum reverse mortgage for the lowest up-front loan costs.
The new Robert Bruss special report, “Everything Homeowners Need to Know About the $250,000 and $500,000 Home Sale Tax Exemption,” is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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