DEAR BOB: Thank you for recommending, about six or seven years ago, that my husband and I set up a living trust for our major assets. But the first lawyer we consulted said living trusts were a rip-off. However, a close friend recommended her lawyer who set up our living trust and deeded our four properties into our living trust. All went well until my husband became afflicted with Alzheimer’s disease. He quickly deteriorated and, after consulting our two adult children, we agreed he should be moved to a convalescent home specializing in Alzheimer’s. Unfortunately, such care is not paid by Medicare. I had to sell one of our rental properties. But, thanks to the living trust, I had no problem doing so. Then he suffered a serious stroke and had to be moved to a higher, more expensive, level of care. Again, I had to sell off another rental property. As successor living trust trustee, I had no problem transferring title without his signature. Then he died. It was a blessing because he no longer recognized his children or me. After his passing, the attorney advised me how to clear the titles to our two remaining properties, one of which was out-of-state, without probate. Thank you for telling us about living trust benefits, which made this ordeal so much easier financially – Doris H.
DEAR DORIS: Thank you for sharing your personal experience so we can see how your living trust made the situation more bearable. Your circumstances show how living trusts allowed you, as successor trustee, to manage living trust assets when one co-trustor is unable to act.
Purchase Bob Bruss reports online.
Equally important, when your husband passed on, probate costs and delays were avoided, even for that out-of-state property. More details are in my special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs.” It 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.
HOW TO CREATE YOUR OWN BI-WEEKLY MORTGAGE TO SAVE MONEY
DEAR BOB: I received notice from my mortgage lender about how I can save thousands of dollars by paying half of my mortgage payment twice a month instead of paying the entire payment once a month. But the cost of setting up the plan is $300. When I phoned the lender to inquire, I was told if I do this on my own and send in a partial payment every two weeks, my payment will be put into a “holding account” until I have paid a full month’s payment. But as I understand the bi-weekly mortgage, my loan will be paid off in about 22 years and I will save lots of interest. Do you recommend this plan? – Derek G.
DEAR DEREK: No. That $300 bi-weekly mortgage set-up fee is a scam. You can accomplish the same result yourself and keep full control.
The basic idea of a bi-weekly mortgage is to make the equivalent of 13 mortgage principal and interest payments every 12 months. The result, depending on your mortgage’s age and interest rate, is to cut the loan term to about 22 years and save thousands of interest dollars.
To achieve the same result, without involving a third party, just divide your mortgage principal and interest payment by 12. Disregard any amount you pay into an escrow account for property taxes and insurance. Then add the result to your regular monthly mortgage payment. Be sure to clearly indicate the extra sum is for principal reduction.
However, it is worthwhile to make extra mortgage principal payments only if you plan to stay in your home “forever.” If you expect to sell in a few years, you won’t save much mortgage interest by making extra principal payments each month.
IS AN ADJUSTABLE-RATE MORTGAGE TOO DANGEROUS?
DEAR BOB: My husband and I “missed the boat” to buy our first home while mortgage interest rates were so low. However, we met a mortgage broker who offers a low fixed-rate mortgage for seven years. After that, it converts into an adjustable-rate mortgage. The index is based on the one-year Treasury bill. What worries me is there can be “negative amortization,” which, I think, means we might owe more principal than we originally borrowed. Is an adjustable-rate mortgage too dangerous now? – Sophia E.
DEAR SOPHIA: Don’t feel bad. Lots of prospective home buyers missed the boat by failing to buy a house or condo while mortgage interest rates were at rock bottom.
But interest rates are still very low. An adjustable-rate mortgage locked-in for seven years can be a very good deal for you.
However, I don’t like that negative amortization feature. It means your ARM interest rate is adjusted frequently, perhaps every month, but your monthly payment is fixed. Any unpaid interest is added to your loan’s principal balance. That’s not good for you.
Please shop around. You can find ARMs with interest rates locked for three, five seven, and even 10 years without negative amortization.
ARE REFINANCE MORTGAGE LOAN FEE POINTS TAX DEDUCTIBLE?
DEAR BOB: We have locked in a 6.12 percent interest rate on our home loan refinance. However, it requires us to pay a one-point loan fee. The mortgage broker says this loan fee is tax deductible. But I recall you saying something about non-deductible loan fees. Who is right? – Herb H.
DEAR HERB: I’m right. Your mortgage broker is wrong. Perhaps he or she is thinking of a home acquisition mortgage where the loan fee is fully tax-deductible in the year of the home purchase.
Because you are refinancing, any loan fee points you pay can only be deducted over the life of the mortgage.
For this reason, I suggest you pay a slightly higher fully tax-deductible interest rate but don’t pay any loan fee points on a home loan refinance. For more details, please consult your tax adviser.
ARE INTERNET MORTGAGES A GOOD DEAL?
DEAR BOB: We are shopping to refinance our home loan, which has a 6.75 percent interest rate. My wife found an Internet fixed-rate mortgage at 5.75 percent, which seems like a very good deal because it requires no loan fee payment. It was from one of those Internet lenders that advertise “we make lenders compete for your loan.” So we filled out all the online application forms. Then we waited. And waited. There wasn’t any phone number to call. So we repeatedly e-mailed the lender almost every day. No reply. Unfortunately, we don’t have the name of the actual mortgage lender. Now we’re worried it was all a scam and somebody got all our personal credit information and we might become fraud victims. Are Internet mortgages a good deal? – Rich H.
DEAR RICH: Although I personally obtained an excellent home equity loan on the Internet, I dealt directly with a major nationwide bank and was very satisfied. However, dealing through one of those Internet mortgage brokers who shops your loan application among dozens of lenders is a different matter. I have received many complaints about all the major Internet lenders, including the one you named.
To put matters very bluntly, I wouldn’t give my personal financial information to any Internet mortgage broker unless I knew exactly with which actual lender I was dealing and unless I had a phone number to contact in the event of problems.
IS PAYING ONE-EIGHTH PERCENT EXTRA WORTHWHILE TO AVOID PMI?
DEAR BOB: I am one of those “cash challenged” home buyers you often mention. Fortunately, I’m working with an excellent mortgage broker. She found me an outstanding fixed-rate mortgage and locked in my interest rate. But, since I only have 5 percent for the down payment, I will have to pay the dreaded PMI (private mortgage insurance) you frequently discuss. However, if I pay an extra one-eighth percent interest on my mortgage, I can avoid the PMI cost. Is this a good deal? – Breen W.
DEAR BREEN: Yes. If you pay the PMI premium, it will add about 1 percent extra to your mortgage cost. And, as you know from reading this column, getting rid of PMI when you build up more than 20 percent home equity can be a nightmare.
Another advantage of paying the extra one-eighth percent interest is all that interest will be tax-deductible for you. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Nothing Down,” is now 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.
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