I hope you can help me find out. I am 69 years old and will be 70 at the end of the month. I was offered a refinancing loan with payout and I have to decide whether to take out a loan at 15 or 30 years old. My monthly obligation would of course be higher for the 15 year loan.
I also can’t – probably will – live long enough to pay off the remaining 11 years on my current mortgage. I am diabetic, let alone other ailments. The mortgage lender knows my age, but the choice is mine.
Normally the heirs would have to deal with it based on the will, but in my opinion I have no heirs. I am single, have never been married and have no children. My mother passed away and my father is 97 years old. He lives with a woman, but they have chosen not to get married.
My brother and I have been estranged since 1990. I don’t intend to leave him anything of value – he ripped me off when our mother died, besides the fact that I don’t actually have anything of value. I don’t want to leave him a mess. He is 67 years old and who knows if he will still be alive when I die. Then there is my niece, his only child, whom I hardly know. She has never tried to correct that fact since she was an adult. She is 38 years old, single and has no children. I have 33 or more second cousins, but haven’t had a relationship with the few I’ve ever met for nearly 30 years.
My hurt and resentment towards my brother and niece should not negate my obligation to make a will. You’re my blood, after all, and I’m not emotionally tied to any nonprofit organization. I have close friends whom I met between 1954 and 1966, but no other.
I now owe about $ 33,000 on my current mortgage. I ask for a withdrawal of $ 30,000 to use on home improvement. Valuation is waived, but the same size units in my condo have sold for between $ 285,000 and $ 315,000. I live in the suburbs of Los Angeles. The current monthly payment is $ 458, including property taxes, with an interest rate of 5.25%. The new payment is $ 531 at 3.28%. Not much of a difference considering what all of the commercials say the current refi rates are, but my debt to income ratio is out of luck.
“If I die, who will get stuck with the unpaid credit? Does the lender assume so? ‘
Right now my only “real” income is Social Security, and my father sends me $ 900 a month from an escrow account. I intend to go back to work next year because I’m insanely bored, but that has nothing to do with the credit. The amortized 30 year loan payment includes closing costs, prepaid taxes, and over $ 17,000 in outstanding debt on top of the remaining mortgage and payout.
If I die, who will get stuck with the unpaid credit? Does the lender assume so? Doesn’t someone have to attend to every issue or get the balance when it is sold? Am I right that it doesn’t matter if I take out a loan when I am 15 or 30 as I could die before either one is paid off?
Are there other types of issues my inheritance has to grapple with since the intended loan is significantly below the home value? Another earthquake could happen, of course, but aside from an unforeseen disaster or my arrears, who could be legally compelled to resolve any issues if I don’t leave a will?
Golden Girl refinancing
Let me start with your question about the length of the loan repayment period as I fear that you may underestimate the difference between a 15 year loan and a 30 year loan.
You know the monthly payment is higher on a 15 year loan – that’s true. But it could be even higher than you think (unless the lender already spelled the difference). For example, for a $ 100,000 mortgage with a term of 30 years and a 3% interest rate, the monthly payment would be approximately $ 422. If the same loan had a 15 year term instead, the monthly payment would be around $ 691.
To emphasize, the monthly payment on a 15 year mortgage is around 64% higher. With a 15 year loan, people are often drawn to the shorter term because it saves them interest in the long run. But for someone with a steady income, that difference in monthly payment can make all the difference.
The monthly payment for a 15-year loan is around 64% higher than for a 30-year loan.
As you said yourself, it is not clear if you will live long enough to see the loan paid off one way or another. The long-term savings that result from the shorter term would most likely not be worthwhile. You are now dependent on your father’s financial support, but will this continue when he dies? If not, the higher monthly payment on a 15 year loan could suddenly become completely priceless.
For those who get the house in the event of death, it does not matter whether the mortgage had a term of 15 or 30 years for the settlement of the debt. Even if we die, our housing-related debts still have to be paid.
In your case, it sounds like you either don’t have a will or you haven’t specified who will inherit your fortune after your death. Most states have a process of determining who is eligible for inheritance, starting with spouses and children, followed by grandchildren. In cases where none of these people are around, the state will consider other relatives, including siblings, nieces, and nephews. The state can also inherit the property itself.
If you died without a will and the state does not determine a rightful heir to the property, then in theory your mortgage lender or servicer would foreclose the house to cover the loan. When an heir has been identified or you have named one, most states have laws protecting their rights to the home. When you die, your heirs would inherit the title of the house but not the mortgage. Mortgages often include a maturity clause that requires the loan to be paid back when the home is sold – as ownership then passes.
When the transfer of ownership is through an inheritance, laws usually protect the heir. You can take the mortgage and keep making payments. In some cases, they can have the mortgage transferred in their name, or they can sell the house to pay off the loan and reap the remaining proceeds.
When you think of heirs, don’t just think of blood relatives.
If I can exaggerate just a little, I would advise you to reconsider who is worth taking on your inheritance. By nature, most of us think of leaving our worldly possessions by blood relatives – but in my opinion the definition of family is broader. Your brother gave you grief and you say you have practically no relationship with your niece.
It sounds like you have a lot of friends that you have rich relationships with. Sure, they may not be romantic, but I am sure these friends will bring joy and comfort to your life. These people are your chosen family, and they deserve all of the rights and privileges normally reserved for blood relatives. In fact, you can bequeath your possessions to a friend rather than a family member.
Perhaps your friends are not interested in inheriting your condo, but I would speak to them to see what they would think of such a gift. Perhaps you have a child or other relative who could benefit from inheriting an apartment (or the financial value of that property).
You have worked hard to keep your home going and you should be comfortable knowing that after you die, someone you care about will do. Whoever identifies you as your heir, let them know your plans. That way, your passing will not come as a shock and you can feel well equipped to tackle the various tasks associated with an inheritance.