DEAR BOB: My wife and I have a first mortgage at 7.5 percent interest. We can refinance for around 6 percent, resulting in huge savings. But our problem is we have a $100,000 home equity credit line at one-quarter percent below the prime rate. We like this home equity loan very much because of its flexibility. It’s great to write a check for $20,000 or so when we need something. Then when we have surplus cash, we pay down the home equity credit line. It’s great. Is there any way we can refinance our first mortgage without touching the home equity loan? – Royce R.
DEAR ROYCE: Yes. That’s easy. Just ask your home equity credit line lender to “subordinate” that second mortgage to a new first mortgage. Most home equity lenders will be glad to do so because they don’t want to lose you as a profitable customer.
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Usually all that is required is for the junior lender to sign a recordable subordination agreement. I am surprised your new first mortgage lender didn’t explain subordination to you.
WHY RETAINING A LIFE ESTATE IS NOT A GOOD IDEA
DEAR BOB: I am 76 and in pretty good health. But I am short of income. My daughter and son-in-law offered to make my mortgage and property tax payments if I will deed my house to them, retaining a life estate. They have excellent income. My son-in-law owns his business which is very profitable. What do you think of this idea? – Ted W.
DEAR TED: I don’t like that idea at all. Gifting your home to your daughter and son-in-law is very good for them, even though you retain a life estate. But you will lose control over your home.
For example, suppose in a few years you need to move to an assisted living home. How will you pay for that care if you’ve already given up your home and its equity?
A far better alternative for you is to obtain a reverse mortgage to provide the income you need for the rest of your life. But you still control your home.
If you decide to sell your home in the future so you can move to an assisted living residence, you can then make that decision.
WHY WOULD ATTORNEY ADVISE AGAINST LIVING TRUST FOR HOME?
DEAR BOB: Having read your wonderful articles for years, I finally got motivated to get one of those living trusts you often recommend. What motivated me was a close friend died about six months ago. Her daughter told me the nightmare it has been dealing with the lawyers and going through probate court hassles. She said her mother wouldn’t listen to her when she kept suggesting a living trust to avoid probate costs and delays. So I went to see a lawyer about a living trust. My assets are very simple and modest so he transferred them into my living trust. But when it came to my house, he said I should not put the title into my living trust. However, I didn’t think he had a good explanation. Is there any reason why my house title should not be in my living trust? – Hugo T.
DEAR HUGO: I am not aware of any valid reason why title to your home and other real estate should not be part of your revocable living trust. Even in Florida, where there has been a problem with some county recorders, if it is clearly labeled as a revocable living trust there should be no problem.
Could it be that the attorney wants to provide for his future probate business when you pass on? Just a thought. I suggest you consult another attorney who specializes in living trusts.
The Robert Bruss special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs,” 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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