DEAR BOB: I am a 51-year-old widow of eight years with three children, ages 9, 11 and 15. I earn only about $3,000 per month and my children receive a total of $2,100 per month in Social Security benefits. I have owned my home for six years and currently have a 30-year fixed-rate mortgage at 5.375 percent interest. My monthly payment is $1,279, including $67 PMI (private mortgage insurance) plus $217 for escrowed property taxes and insurance. I have $16,000 in credit card debt at 8 to 10 percent interest, mostly for home improvements and medical expenses, and $125,000 in an IRA. My FICO score is 779. I recently met with a financial advisor/college planner who recommends I refinance with a 20-year, fixed-rate, interest-only mortgage at 6.75 percent interest. My new payment would be $1,317 including the tax and insurance escrow but no PMI. But I would go from having $70,000 equity to almost no equity. He anticipates I will refinance again in three to five years. I would walk out with about $25,000 cash to pay off my credit cards and buy annuities. I would use the $600 saved each month on credit card debt for emergency cash reserves. Is this interest-only mortgage a good idea? –Phyllis K.
DEAR PHYLLIS: You appear to be doing a great job of managing your household on a limited budget. But I don’t like the idea of your being “sold” on a bad interest-only mortgage that will wipe out your equity and not build any future home equity from monthly mortgage payments.
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Unless you currently have an FHA mortgage, you can easily get rid of that $67 monthly PMI premium if your loan-to-value ratio is below 80 percent. Just contact your lender and explain you have at least 20 percent home equity. You’ll have to pay for a new appraisal, but that will be money well spent to save $804 annually.
There’s no advantage for you to refinance from 5.375 percent to 6.75 percent interest. If you want to pay off your credit card debt, get a home equity credit line. With your superb FICO score, your bank should eagerly approve such a credit line at the prime rate or lower.
RECENT EXCELLENT BOOKS ON MORTGAGE LENDING TRICKS
DEAR BOB: Several months ago your article gave a top rating to a new book by a mortgage insider who revealed the mortgage lending dirty tricks. But I lost that article. What is the name of that book? –Peggy P.
DEAR PEGGY: In the last few months I reviewed several excellent new books by mortgage insiders. The most recent is “Mortgage Rip-Offs and Money Savers” by Carolyn Warren. Another superb recent book is “Mortgage Confidential” by mortgage broker David Reed. Both are available in stock or by special order at local bookstores, public libraries and www.Amazon.com.
HOW TO LEARN ABOUT APPRAISALS
DEAR BOB: I am a real estate investor with an interest in getting certified to appraise residential and/or commercial properties. Someone told me that appraisers will not be in demand due to the availability of information on the Internet. I don’t want to waste my time or money if property appraisers will not be in demand in the near future. What is your opinion? –Sandy W.
DEAR SANDY: I suggest you take the basic real estate appraisal course at your local community college next semester. After completing the course and talking with the instructor, you will know if you like appraisal work and what the future is for appraisers.
GET AGGRESSIVE IF CONDO ASSOCIATION WON’T FIX WINDOW LEAK
DEAR BOB: About two years ago, my boyfriend and I bought a two-bedroom condo. Before we closed our purchase, we were told by our professional inspector there was a problem with moisture and rain around a bedroom window. The condo management company sent out a contractor who agreed the problem was structural and the homeowners association should pay for repairs. So we went ahead with our purchase. Despite our repeated pleas and letters, the window still leaks. We finally contacted the president of the large homeowners association who had no knowledge of the problem, and the leak is now so serious that we can’t use that bedroom. Our son is now two years old and we were hoping that would become his bedroom. What should we do? –Erica W.
DEAR ERICA: If I were in your situation, I would be much more aggressive. The homeowners association clearly has a duty to repair that leaky window.
I suggest writing a very polite letter to the homeowners association president, with a copy to the professional management company, stating you want this long-standing problem fixed within 30 days.
If you don’t get satisfactory action by then, it’s time to hire a local attorney who is familiar with condominium law. This problem is affecting the enjoyment of your condo, its market value and the marketability of your unit. You’ve been very patient far too long.
REALTOR IS IN PROPERTY SALES, NOT FORECLOSURES
DEAR BOB: I sold my house six years ago and carried back a $7,000 second mortgage at 5 percent interest for the buyer. She has made only random payments of different amounts, for about $5,000 total, including interest. There was supposed to be a balloon payment due at the end of two years. She still owes me about $5,000. My problem is the Realtor who handled this said he would handle any problems. He has all the paperwork. I realize I am not at the top of his priority list. The loan is way overdue. I’ve avoided consulting an attorney because I heard the fee would be more than the loan balance. What should I do? –Marianne T.
DEAR MARIANNE: Get rid of that Realtor. His job is to sell properties, not to advise you on servicing a mortgage that is in default. Get all the paperwork from the Realtor and figure out exactly what the defaulting borrower owes you.
Then, depending where the property is located, take your documentation to either the trustee named on the deed of trust or to a local real estate attorney who specializes in mortgage foreclosures.
This should be a routine matter to either record a notice of default or file a mortgage foreclosure lawsuit. You have been far too lax. Get busy.
You will get your money when the borrower receives the official notice or, if the property goes to a foreclosure sale, from the high bidder, or you will get the property title back to sell for a second profit.
WHO IS LIABLE FOR THEFT AT OPEN HOUSE?
DEAR BOB: At some point during the showing of my house for sale or while it was being inspected, an expensive item went missing. Is it unreasonable to ask the real estate agents involved to be responsible for items stolen? Or is this something for our homeowners insurance to deal with? –Nick G.
DEAR NICK: You should not have left an expensive item in the house that you knew would be inspected by strangers. Unless you can prove that the realty agent, a professional inspector or a prospective buyer stole the item, forget it. Of course, if the item is insured under your homeowners insurance policy, file a claim with your insurer.
LIVING TRUST CAN AVOID PROBATE PROBLEMS
DEAR BOB: I asked my father to put our house into a living trust, but he refuses. My younger sister ran away from home in high school. He thinks if he dies intestate without a will the probate judge will make me own half of the house with her in case she ever reappears. Should he die, what will I do with one-half of a million-dollar house? I can’t sell or rent it without my sister’s approval. What is the solution? –Mel G.
DEAR MEL: If your father dies intestate without a will, state law decides who gets his property. Probate court proceedings will be required, thus taking at least six to 18 months, perhaps longer.
If you and your missing sister are his only heirs, the house and other assets will go to both of you by intestate succession. After you both receive title, then you could bring a partition lawsuit to force a sale of the house. If she can’t be found, the court could order her half of the sales proceeds held in trust for her.
But a better approach to avoid probate court interference is for your father to deed the house and his other major assets into his revocable living trust. When he passes away, then the living-trust assets will be distributed by the named successor trustee (presumably you) as provided in the living trust.
In the living trust, your father can specify his estate goes to you with $100 to your sister. Then, upon his passing, you can sell or keep the house. More details are in my new special report, “Pros and Cons of Living Trusts to Avoid Conservatorship, Probate Costs and Delays for Your Heirs,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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