Q: We bought our home 18 months ago for $63,000. There's a $29,000 mortgage on it at 10 percent interest, payable over 30 years. Our mortgage is $375 per month, taxes and insurance included. We can borrow the mortgage amount at our credit union at 9 percent payable over 10 years. The monthly payment would be $357, taxes and insurance not included.
Our entire life's savings, which are in the credit union, will continue to earn interest that will be frozen up to the amount of the balance owed on the mortgage loan at any given time. We are in our early 50s and still working. Should we refinance through our credit union or keep our old mortgage?
A: First let me ask these questions: Can your current mortgage be paid off without a prepayment penalty? Do you prefer having lower monthly payments, or smaller overall sum (interest and principal) to pay? If you finance through your credit union, will you have enough savings above the balance on your mortgage loan at a given time to meet an emergency? Are your jobs reasonably secure?
Is your health good? Can you forsee needing a fairly large sum of money in the future? Can you refinance this home at a lending institution other than your credit union at an interest rate lower than 9 percent? (You won't have your savings frozen. The home itself should serve as security for the loan.) What will be the costs attendant to paying off your current mortgage and securing a new one through your credit union?
Answers to these questions will determine your best course. For example, you can probably decrease your insurance premiums or (more accurately in today's insurance climate) mitigate the almost inevitable increase, by insuring for three years at a time. Under your present mortgage loan you're probably insuring one year at a time.
If you want a low monthly mortgage payment, even though the total sum paid over the mortgage term is greater, you may want to shop around for the lowest interest rate obtainable for terms of 15,20 or 25 years. This will give you a lower mortgage constant, and, thus, a lower monthly payment. If you don't mind a higher monthly payment, then look for the lowest interest rate for a 10-year term.
Q: We're thinking about buying some commercial land that abuts a dead-end residential street. It has been used by pedestrians and cars as a shortcut to this street. Our attorney says this is an easement and we may have difficulty if we wanted to sell it or build on it. The real estate salesman says this is immaterial. Who's right?
A: You attorney is giving you sound advice when he says that you may have difficulty.
Those now using the land as a shortcut may assert that they have a right to continue. You, then, may have to litigate to try establish your undeniable ownership of the land. Your attorney can explain it to you.