DEAR BENNY: With mortgage loan rates at record lows, I’m thinking of refinancing my 30-year fixed-rate loan. The lender is recommending that I roll into the refi amount the balances I owe on my car and two credit cards. The advantages would be that they’d be "paid off," the interest rate on the amounts would be lower than I’m currently paying on any of them, and the interest paid would be tax-deductible.
But I see a big disadvantage, too. The total of the amounts on those five-year (on which I still have three years to pay) and revolving loans would now be amortized over 30 years! Does it make sense to do that? How can I figure out if it’s a smart move or not? –Janet
DEAR JANET: I think it’s a good idea, but only you — and your pocketbook — can make the final decision. The interest you pay on your car loan and on your credit cards is not deductible for income tax purposes. So your lender is offering you a deal whereby you pay less and at the same time have the opportunity to deduct the mortgage interest.
Keep in mind that most people do not keep their homes for 30 years. Also understand that real estate does — and will eventually — appreciate in value. Your car depreciates rapidly, so why keep making a higher monthly payment on that asset? I would rather pay on an asset that is going up in value.
You have to do the numbers. How much will you save now compared to three years from now when your car is paid off?
All in all, however, I can’t see any downside to your mortgage lender’s suggestion. But act now because interest rates are rising.
DEAR BENNY: My lady friend recently sold her house. The buyer looked over the house and made an offer to the real estate agent. A few negotiations later, the offer was accepted. The buyer and a friend inspected the house and land from dirt to chimney, reviewed the radon and insect reports, and proceeded to tell the agent and my lady friend what needed to be repaired and replaced before "consummating the deal."
The real estate agent told me that was the way things were done in Iowa, but something smells here. This old farmer from Nebraska would never have made an offer and negotiated price before "me and my boys" had inspected and re-inspected everything. So, what is common in states other than Nebraska and Iowa? –Ron
DEAR RON: I don’t know what the practices are throughout this country. In fact, I am not sure there are standard practices — everything is subject to negotiation.
I strongly believe — indeed urge — that potential homebuyers should have the house inspected. But this can be done in one of two ways. First, as you suggest, the potential buyer could carefully and thoroughly inspect the house before they enter into a contract. If they are not satisfied, they can either walk away or include repair and correction provisions in their real estate contract.
However, when market conditions favor the seller, there is a risk. The potential homebuyer could spend the money on the inspector only to learn that the seller has entered into a contract with a third party. And the same problem is now occurring with short sales, where potential buyers have to wait a very long time to determine whether the lender will approve the contract.
Thus, my preference is to sign a contract, but have it completely contingent upon receiving a satisfactory home inspection within a certain number of days. If the buyer is not satisfied — for any reason — he or she can void the contract. That’s the meaning and function of a contingency in a sales contract. And if a short sale is involved, try to have the lender approve before you have to conduct the inspection. …CONTINUED
Some real estate agents — especially in seller’s markets — discourage buyers from including a home inspection contingency in their offer to purchase. I do not agree with this approach. The inspection actually benefits buyers and sellers. I have represented many sellers in my legal career. When a buyer complains (or files suit) that certain things do not work in the house, I have successfully used the fact that the buyer obtained a home inspection, and if they have a complaint, it should be levied against the inspector, and not the seller.
DEAR BENNY: I may have a new twist on an established protocol concerning taking property by adverse possession. In November 1993, my husband and I purchased a house from the city and had it moved out to the country where we owned a four-acre parcel. When the driveway was poured, the concrete contractor poured the apron and perhaps a part of the driveway itself into the cul-de-sac, which is county property. We have lived in the house since June 1994 and have taken care of the driveway and apron since that time. The county hires road graders to push snow and fill holes in the dirt/rock road on a regular basis. If and when we decide to sell, where would we stand with our driveway encroaching into the cul-de-sac? Or can we file to own by adverse possession? –Judi
DEAR JUDI: The concept of "adverse possession" — where if you squat on someone else’s property for the statutory period of time you can get a judge to rule that you own it — is in upheaval throughout the country. However, to the best of my knowledge, you cannot assert adverse possession against a government.
Have you talked with appropriate county officials? They may be willing to either sell the strip of land to you, or at least grant you a perpetual use and access easement over the cul-de-sac.
You should consult a zoning/real estate attorney in your area for specific advice.
DEAR BENNY: I have a question in response to your advice to shop around for loans. It used to be that whenever a person applied for a loan, the inquiry would show up on your credit report. That was considered something that lenders watch out for, and could raise a big red flag. It also stayed on the credit report without any explanation for the inquiry. Is this still considered a negative item on a credit report, or has that implication gone away? –Lesley
DEAR LESLEY: I am not a mortgage lender and do not know the answer. I asked a lender friend, and he said it was a mystery to him whether credit-card companies — and Fair Isaac (FICO) — use multiple inquiries in determining credit standing.
I do know that potential homebuyers who make loan applications are given a copy of their credit report (or at least they should be given this), and if you see multiple loan applications listed, you certainly have the right to explain to your prospective lender that you were shopping around. In fact, the lender should be pleased that you selected his/her company.
If any reader has more information on this, I would welcome your assistance.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to email@example.com.
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