Q DEAR BOB: My grandson and his wife obtained a private-mortgage-insurance home loan. They weren't able to come up with a large enough down payment to avoid PMI, even though they have excellent credit. Can the PMI be renegotiated? It looks to me as if they will be paying $19,000 extra over the next 10 years and seven months before PMI can be canceled. What should they do? -- Elsie R.
ADEAR ELSIE: Private mortgage insurance, which protects the lender from loss if the borrower defaults, is expensive, but it enabled your grandson and his wife to buy their home with little or no cash.
Last year, Congress almost made PMI premiums tax-deductible, just like mortgage interest. However, at the last minute the proposed PMI tax deduction was removed from the legislation. Perhaps homeowner PMI deductions will be in the next tax bill.
When your grandson and his wife build up at least 20 percent home equity, most lenders will allow PMI cancellation, thus saving thousands of dollars. However, many lenders won't cancel PMI until the borrower has made at least 24 months of on-time mortgage payments. Your grandson and his wife should have obtained in writing the PMI cancellation rules for their mortgage. Then they would know if they can cancel PMI early or if they must wait more than 10 years to build up 20 percent equity from mortgage principal reduction.
It's too late for them, but a savvy mortgage lender could have shown them how to avoid PMI, perhaps by obtaining an 80 percent first mortgage and a 20 percent second mortgage or home equity loan. Not all lenders offer such plans, but many do.
After your grandson and his wife have at least 20 percent home equity, if their current lender won't cancel their PMI premiums, they should refinance with another lender that doesn't require this expensive insurance.
DEAR BOB: How can we take our daughter's name off the title to our rental condominium? -- Barbara B.
DEAR BARBARA: It's easy to add someone to a title by use of a quitclaim deed, but you can't easily remove a co-owner, such as your daughter, from your title. I'm not clear why you want her name off your condo title. However, if she is willing to sign a quitclaim deed to you, that's the easiest way to get her name off the title.
If she is not cooperative, there is no way to get her name off the title. You could bring a partition lawsuit to force the sale of the condo, but then she would be entitled to her share of the sales proceeds. Consult a lawyer for details.
DEAR BOB: I read with interest your recent explanation of revocable living trust benefits. My brothers and I are involved in an irrevocable family trust. Can it be managed like a living trust? -- Della A.
DEAR DELLA: No. The terms of an irrevocable trust cannot be changed. Individuals who establish an irrevocable trust often do a disservice to the beneficiaries, such as you and your brothers. However, I must hasten to add that when the creator, called the trustor, of a revocable living trust becomes incapacitated or dies, then its terms become irrevocable. Further details are available from a lawyer specializing in trusts.
DEAR BOB: I have tentatively entered into a contract to trade my vacant land for several rental apartment buildings. My accountant has advised me that I won't be able to take a depreciation deduction on the apartments, saying, "You didn't pay anything for them." This doesn't seem right. Now I'm wondering if this is a good tax-deferred exchange for me. What's your advice? -- Mrs. M.M.
DEAR MRS. M.M.: My best advice is to get a new accountant. Although your vacant land was not depreciable, federal tax law requires owners of depreciable rental buildings, such as apartments, to take annual depreciation deductions even if that deduction won't save the investor any tax dollars.
DEAR BOB: Since 1992, I have had a life estate in my home. My daughters are the owners. Should I transfer my interest into my revocable living trust? -- Alberta S.