Real Estate Matters - July 25, 2009
By Ilyce Glink

Q: Ilyce, please help. Our lender (a big national bank) said they can help us refinance. We'd get an $82,000 loan, at 3.25 percent interest with no closing costs. The interest rate is tied to the prime rate. Our payments would be $389 a month and we can pay more if we like as long as we keep the loan with them for two years. They told us if the prime rate goes up, we can lock in a rate before it rises too much. Is this a good deal?

A: This sounds like a pretty good deal. Be sure to read the fine print so you understand exactly what kind of prepayment penalty you would pay if you have to sell off the house and pay off the loan within the two-year time frame.

You should also understand what financial index the loan is tied to (I know you said the prime rate, but there may be a different index it is tied to when your lender tells you could convert the loan to a fixed rate loan later on) and how quickly your interest rate can rise each year.

For example, variable interest rate loans can typically only rise 1 or 2 percent per year, with a lifetime interest rate cap of 5 or 6 percent. In your case, that would mean your loan would top out at 9.25 percent, no matter how high the prime rate goes.

Finally, while your deal might sound good, you need to understand what your existing loan terms are and how the terms of your new loan compare. What are your savings per month on your new loan when you compare it to your old loan?

Before refinancing, make sure your new loan terms will lower your interest rate. Also be sure your refinance costs can be recovered within six months (that is, your monthly savings on refinancing your loan will start to benefit you over the costs you pay to refinance within six months). And don't extend the length of your loan solely to get the benefit of a lower monthly payment -- unless that is the only option available to you. Many homeowners only look at a monthly payment when deciding to refinance a loan. The lower monthly payment is only one piece of the puzzle. If you are going to pay an extra 15 years of interest to get a lower monthly payment, that would be a bad deal.

If you don't thoroughly understand what you're being offered, or all the possible ramifications, please take the time to figure it out before you sign on the dotted line. You can also call a HUD authorized housing counselor. That counselor may also be able to give you additional advice on your refinancing.

Q: I have just learned that my 84-year old mother has deeded all of her property, including her home, to her granddaughter and my older sister. There is no mortgage against the house and the will states the property cannot be sold or mortgaged.

I am a widow and also have a twin sister in addition to our older sister. My twin sister is divorced and she resides with my mother. We are the youngest of her children.

My mother's will supposedly says that my sister and I can live in the house until we die. However, should one of us remarry we are to move out. And should the house need a major repair, we are to consult with the granddaughter and my older sister. Is this legal?

A: Your mother can dispose of her property in any way she wants. She can create stipulations in her will that govern what should be done with her property under certain conditions.

But if she has already given the property away to your older sister and her granddaughter, then her wishes stated in the will won't apply to this house -- they would apply only to property she currently owns. The purpose of a will is to dispose of property owned by a person at the time of their death. In your mother's case, she would no longer own the home and you would have no rights to the home.

That would put you at the mercy of your older sister and your mother's granddaughter.

Are you sure your mother is of sound mind? Are you sure she isn't being abused by your twin sister who resides with her? Has the deed already been recorded? Was it recorded properly?

If the deed to the property was recorded properly, then your mother's granddaughter and your sister probably already own the property. This was a foolish choice on your mother's part, since it may expose her daughter and granddaughter to taxes down the line. If they simply inherited the property, it would likely be a tax-free inheritance.

In any case, you should have a discussion with your mother to talk about why she has made these choices. If nothing else, it will provide you with some closure. If you suspect that your mother made these decisions under duress, or was not of sound mind when she signed the papers, you should contact an elder law attorney.

Many states have enacted laws to protect older individuals from undue influence of relatives, friends and even strangers. These laws make it a crime to transfer ownership of their property when it is done under circumstances considered abusive. If you suspect these circumstances, your attorney can give you more advice.

Ilyce R. Glink's latest book is "100 Questions Every First-Time Home Buyer Should Ask: With Answers from Top Brokers from Around the Country" If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce's Web site, www.thinkglink.com.)

 

 

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Much has changed in the world of real estate over the past 18 months -- new tax credits, tax deductions, and tax laws relating to short sales and foreclosures. New rules relating to appraisals, mortgages and home equity loans. And there are new entities to oversee and manage the crisis. Despite these changes, some key parts of the home buying process haven't changed at all. Here is a list of things that have remained constant through the tumult ...

 

Ilyce R. Glink's latest ebooks are "Save Your House From Foreclosure" and "The Clutter Collector: How to Get Rid of Clutter Everywhere In Your House," which are available at her Web site, www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 am-1 pm EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022

 

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