Homeowners with extra cash cautioned about paying off mortgage

DEAR BOB: My husband and I owe about $57,000 on our homemortgage at 6.75 percent interest. We have that amount in a money marketaccount, which only earns around 4 percent interest. I think we should takethat money to pay off our home loan and never have to worry about mortgagepayments again. I am 58 and my husband is 56. He took an early retirement buy-outfrom his employer, but I still work as a legal secretary because I enjoygetting out of the house each day. Do you think we should pay off our mortgagenow? –Marilyn H.

DEAR MARILYN: If paying off your mortgage will deplete yourliquid reserves, I suggest you do not rush to pay off your home loan. However,if you have lots of idle cash sitting around the house, and you are 100 percentcertain you will never need the $57,000 again, go ahead and prepay yourmortgage.

Purchase Bob Bruss reports online.

Although that 6.75 percent interest rate might seem high, itreally isn’t when you consider its after-tax cost. Presuming you itemize taxdeductions, your after-tax cost of that mortgage is around 4.75 percent.

The big problem most folks don’t think about when prepayinga home mortgage is that they might need that money again in the future. If thathappens, especially when they are retired, sick or unemployed, they are oftenunable to borrow on their home except at loan-shark interest rates and terms.

If you decide to prepay your home loan, before you do so, Ihighly recommend you obtain a home equity credit line (HELOC) now while you arestill working and have adequate income to qualify. That HELOC won’t costanything, except a $50 annual fee, but it will bring peace of mind knowing itis available by just writing a check in case of an emergency.

WHAT IF MORTGAGE APPRAISER IS WAY OUT OF LINE?

DEAR BOB: My wife and I recently applied for a reversemortgage on our home. I am 74; she is 72. Our relatives tend to live untiltheir 90s so we thought obtaining a reverse mortgage would be smart. We agreedon the terms with the reverse mortgage lender, subject to the appraisal. Basedon nearby home sales, we estimated our home would appraise for around $450,000.However, we were shocked when the lender’s appraiser estimated only $387,000for our home’s value. While she was appraising our home, she made severalnegative comments, which we felt were out of line, but we ignored them anddidn’t argue. Do you think the lender told the appraiser to appraise very low?–Stan C.

DEAR STAN: That is possible. Or perhaps you have an overlyoptimistic estimate of your home’s market value.

Your best recourse is to contact your reverse mortgagerepresentative to discuss the appraisal. Request a review of that appraisal and,if necessary, ask for reappraisal at the lender’s expense.

WHAT IF DEFAULTING HOME BUYER WON’T RELEASE DEPOSIT?

DEAR BOB: We thought we sold our house. Everything was setto close on Jan. 5, 2006. The buyers signed off on all the contingencies. Theymade a $15,000 deposit. But two weeks prior to the closing date, the buyer’sagent said the buyers did not want to complete the purchase. We later learnedthey bought another house. Over the next few months we sent several letters tothe buyers at their old and new homes to obtain a release of the $15,000deposit. No reply. We hired an attorney, but he hasn’t received any response.Our Realtor refuses to get involved. The sales contract provides for mediationand arbitration. Is there any way we can get that $15,000 without a costlylawsuit? –Tim and Joyce K.

DEAR TIM AND JOYCE: I presume your attorney attempted tonotify the buyers their sales contract requires mediation of the dispute and ifthat fails, then binding arbitration applies. When he received no responsethere is now no choice but to file a lawsuit to obtain release of that $15,000,which I presume is being held in escrow trust.

If you do nothing, in most states whomever is holding that$15,000 deposit in trust must eventually file an interpleader action in courtto determine who gets the money. You could ask the party holding the $15,000 tofile the interpleader action now, thus avoiding a lawsuit, and let the courtdecide who gets the $15,000.

The new Robert Bruss special report, “Pros and Cons ofFast and Slow House Flipping for Big Profits,” is now available for $5from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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