Need Advice - Any loan/finance officers out there? My Mom is selling her

[OregonBlue]

house and buying a new one. She will clear about $145,000 from her sale and is purchasing a new house for $155,000. She was considering a mortgage for about $30,000 so she'd have more money in savings. Her credit union told her they didn't like to finance such a small mortgage and that the fees on a mortgage are so large that she would be better off getting a $30,000 equity loan. The current mortgage rate in Spokane, WA where she is buying was listed at about 6.5% yesterday for 30 year fixed and the loan officer quoted her 7 3/8% for the equity loan over 20 years.

My Mom is 82. My Dad (they are no longer married but are best friends and will be living together again) is 82. She gets about $1200 month in Soc Sec, he gets about $900. My oldest sister, will be living with and caring for them. She will get about $700 Soc Sec plus she is an artist who sells a number of paintings each year.

Mom would like to pay about $120,000 down and finance the rest.

I would like her to have the smallest payment possible since I want them to live comfortably. She does have about $40,000 in investments put doesn't want to touch that.

We don't care about the length of the loan because she will not live another 20 or 30 years and we will sell the house after both of them pass away.

My question is, should she go with the equity loan? Is there any advantage over a mortgage or is the loan officer telling her this because they don't want to do a mortgage on such a small amount?

Any advice? Who should I talk to? Recommend any Mortgage companies?

I used to sell real estate but it's been a while. Maybe her banker is right but it does sound like it's to their advantage, not hers.

[tsuki]

1. As someone who was told that I could not get fixed money on

a commerical loan, my advice is to check with several banks. I finally found a bank that would fix my loan. And it wasn't my bank, or even in my town.

[ret5hd]

2. heck, i'd consider taking a $100,000 30yr loan...

wait for the first installment and send them a $70,000 payment...voila, a $30,000 loan at 6.5%

i am not a loan or finance officer, nor do i play one on TV. I do, however, hate jerks that won't let me do what i want with my money.

[mcscajun]

4. If she could qualify for such a loan, and would consider it...

She should look carefully for any prepayment penalties.

[mnhtnbb]

6. Except the monthly payment would be based on the $100k loan amount.

[OregonBlue]

9. Yah, that's the thing. I want to keep her payments low.

[dysfunctional press]

14. it doesn't quite work like that...

unless the loan was re-financed, paying off a big chunk won't change the monthly mortgage payment- it will just shorten the term left on the loan.
learned that one the hard way.

[DURHAM D]

3. Does she need the interest write-off?

With those other folks in the house helping with expenses it sounds like she will be fairly comfortable with any option.

[OregonBlue]

10. No, doesn't need the interest write off. She will be comfortable but

her expenses will be much higher in Spokane than where she lives now. Much colder, higher utilities. Food is more since she's currently in Portland where things are really reasonable. She's diabetic and has high medical costs, my dad has prostate cancer (being treated with hormones and under control) and no savings so he will have medical expenses in the future.

I want them to have the lowest payment so they have more cash left for daily needs.

[rzemanfl]

5. Why doesn't she get a reverse mortgage and take some

equity out each month to improve her income position?

[mnhtnbb]

7. I would have her schedule an appointment with a trusted financial advisor

It's worth $150/hr. to have someone give her the best advice on what to do.

[OregonBlue]

11. I suggested that and she, being a really sweet mom, wants to leave

as much as possible to her children. I would rather that she spent every penny she had to live well but she was raised in the depression and really wants to leave us all something. It's a matter of pride with her.

[Vorta]

12. MY friend just looked into that for his dad- very expensive money.

[msongs]

8. shop around. go for a low downpayment?

if you believe you will sell the house upon their deaths, why tie up so much cash in a big down payment?

30K at 6.5% for 30 years means a house payment of only $189 or so per month. you could put the down payment money in a CD earning 5% or more. the house could decline in value, or go up.

the equity loan is gravy for the lender. they get more NOW, knowing the house may be sold relatively soon.

Msongs
www.msongs.com/political-shirts.htm

[OregonBlue]

13. From these replies it sounds like she does need a GOOD financial

consultant. The problem with that is that she invested with Charles Schwab and her investment manager put part of her money into a company in Spokane that turned out to be a bunch of crooks and she lost $12,000. My mom was raised very poor and she was just shocked. She is very leery of investment managers now.

[praeclarus]

15. Since she has investments and there are 3 incomes ....

... I don't see the benefit of taking a 30K mortgage
to have savings. This, in effect, is borrowing money
to save it. Also considering her age it doesn't seem
to be the way to go.

What I would do if I was in the exact same situation
is to pay the 145K profit into the new house and take
a 10K equity line with which to pay the house off in
total.

At the quoted interest rate, the interest payment
on the 10K would start at $63 per month.

The entire 10K note could be paid off in 3 years with
$300/month payments at a total interest of about $1200.00
if the interest rate didn't change.

[OregonBlue]

17. Maybe you're right. If she had any large unexpected expenses in

the future, she should be able to increase the equity loan since the house would be free and clear. The house does need some work and she likes to keep money in savings in case she needs to help out one of her kids or grandkids.

[praeclarus]

19. Yes and...

... if in any particular month, things got a bit tight,
they wouldn't have to pay the whole $300 and could pay
as low as only the interest for that particular month.

[OregonBlue]

23. Again, I never thought of that.

[OregonBlue]

37. You're right but after listening to lots of folks here I want her to cash in

part of her investments and pay the house off. No mortgage, plenty of money to live on, doesn't have to touch her savings. Total equity if she needs to borrow later. All in all a win/win!

[Dr.Phool]

16. She should take the $10K out of investments and pay cash.

She'll have no mortgage payment, and an equivalent 6.5-7% return on the $10k.

[OregonBlue]

20. I never thought about that. Since she would be borrowing at that

rate, she'd be saving that 6.5 or 7.5% and can always cash out investments if she needs money.

[radwriter0555]

25. And she could always take out a small equity line of credit in case she

needs money fast... so paying off the house in full in cash would be a really good way to go. No loan, no bills, her SS income, she's be pretty tidy. She would apply for and get approved for the equity line of credit right away, so it's always available instantly.

[OregonBlue]

35. Exactly I just phoned her and told her the same thing. She doesn't

really like her investment guys since he lost a bunch of money in one of those shady companies and I've been telling her to get her money out before she moves. This way she'll have plenty to live on, no mortgage or loan payment, money in savings and total equity if she needs money in the future. Sometimes things are starring you in the face and you just don't see them. I was out of town when my sisters had all these discussions with the bank people and just wasn't seeing the forest for the trees.

Thank you, Thank you, Thank you.

[OregonBlue]

29. I talked to my mom and she thought you had a great idea. Her Schwabb

person already lost part of her money. I pointed out that you suggested that she would be paying 6.5-7.5% to borrow money when she could just cash in some of her investments and therefore be making that interest. Also she doesn't have to touch her savings and down the road, if she needed money, her property would be free and clear and she could take out an equity loan then.

All makes perfect sense and that's what she's going to do. By eliminating a mortgage or loan payment completely, they will have plenty of money for expenses!!

THANK YOU.

[BlackVelvet04]

18. 7 3/8% interest doesn't sound like a great deal to me.....

of course the bank is in it to make money so they are going to do what's best for them, not your mother.

I'd check with other lending institutions. Going with a lower down payment and investing or putting the cash into interest bearing savings account is an option but I don't think it's a great option for the elderly.....there's always someone try to bilk them out of their money.

I hope there is someone going with her to the lending institutions. We have found with my 80 year old parents that just having a younger person as an advocate protects them from schemes.

[OregonBlue]

21. Yes, she lives about 105 miles from me but I've told her I will talk to

her banker and real estate agent, etc. I was out of town when all of this happened and was trying to help them with contract, etc. by phone. My sister is doing her best but she really is at a loss when it comes to finances. She's a great caretaker and very sympathetic but, as a true artist, she just can't get her head around money stuff.

[BlackVelvet04]

30. Isn't it sad that we have to worry about protecting our

elderly parents from scam artists? it's a sad commentary on humans that they prey on the young, innocent, disabled and elderly.

[OregonBlue]

33. Yes it is. But, thanks to the great folks here at DU, at least I can

get advice I trust! What a wonderful feeling.

[radwriter0555]

26. Yes, that's a terrible interest rate actually for someone with a massive down

and good credit.

[OregonBlue]

38. I thought so too. Of course with the lenders getting to write their own

ticket in recent years, the fees are now enormous.

[Vorta]

22. The credit union might be right

I just looked into refinancing my primary residence pulling out about $30,000. The closing costs were going to be about $4000 and while the loan company doesn't view all that cost (tax stamps and such) as credit cost- I do.

There are $30,000 mortgages to be had. The closing costs may still seem extreme, because they are often based on the sales price, but many of these costs would be the same regardless of the size of the mortgage. The goal would be to only pay these costs once- so don't settle/close on the house and then go looking for financing because many of the charges (survey, doc fees, stamps) would then need to be paid again.

[OregonBlue]

24. Yah, I want to coordinate both closings and all of the financing so that

it all happens at once. They're currently scheduled to close between Dec. 15 and 27 so, I guess I have time to talk to some mortgage people and equity lenders if I do it soon. I just need advice before I talk with them.

[rooney]

27. Sounds very complicated to me. I am not very smart on financing

deals, but I have found a person who gives advice free on the radio and I think, online. Look at www.daveramsey.com . I listen to him offer telephone advice from 1pm til 4pm weekdays on a heaven FAUX station here in the Dallas area. It is my understanding he is broadcast all over the US. Call him free on the telephone and he will give you one and the best solution for the financing immediately.

[lumberjack_jeff]

28. I'd pay cash for the house, then get a home equity line of credit.

She'd own the house free and clear, and could tap the equity loan if she needs anything.

Unless her $40,000 is earning significantly more than the mortgage interest, it makes sense.

HELOC is not very expensive to obtain (they'll use the county assessment in lieu of an appraisal).

IMHO don't unnecessarily complicate things. She has the cash in the bank.

[OregonBlue]

31. Yah, Dr.Phool said the same thing. I called mom and explained that

she should cash out part of her investment and pay off the house. It will be free and clear, she can always borrow against it later, she won't have a mortgage so will have more cash for daily living expenses, won't have to touch her savings and won't be paying interest on borrowed money. Gee, why didn't I think of that? You guys are the greatest!!

[OregonBlue]

32. I LOVE DU. YOU GUYS ARE THE GREATEST!!

Thank you for all the wonderful advice. It's really makes more sense for her to cash in part of her investment, pay off the house now and take out an equity loan later if she goes through her savings. She will have more money in her pocket for daily living expenses since she won't have a loan payment. She'll be saving 6.5-7.5%. You're all just so wonderful. So terrific to have great people to give me advice about life as well as politics. Hugs and X X X.

[BlackVelvet04]

34. Not only will she own the house free and clear....

but later when it comes time for it to be sold you won't have to worry with a mortgage to be paid off with all the accompanying paperwork.

Sounds like a good plan.

(When she cashes out for the rest of the money don't forget closing costs.)

[OregonBlue]

36. Yes, I will call the title company and get an accurate quote on how much

will be due at signing so she'll have enough. Again, thank you all so very much.