Q DEAR BOB: I am a 66-year-old divorced woman. I own my condo, which I bought 15 years ago for $232,500. My mortgage balance is about $115,000. Condos like mine in my building have been selling for $500,000 or more. My problem is that I have a lot of equity, but I can't tap into it for cash.
I am on Social Security and have a part-time job. I have pristine credit. However, I've been turned down for a home equity line of credit because my income does not qualify. When I tried to refinance my mortgage, income was also a problem. I find it difficult to understand how I can pay $771 per month on my current mortgage but I can't qualify to pay $100 per month less on a refinanced mortgage. Any suggestions? -- Stephanie H.
A DEAR STEPHANIE: I am shocked the banker or mortgage lender you consulted didn't suggest a senior citizen reverse mortgage. Because you are older than 62, you qualify. No repayment is required as long as you live in your condo. Instead of making $771 monthly payments, you will be receiving tax-free income with no monthly payments required.
There are three nationwide reverse mortgage lenders (FHA, Fannie Mae, and Financial Freedom Plan). I want you to compare all three plans for your specific situation and then decide which is best for you. To find reputable local reverse mortgage lender representatives, go to www.reversemortgage.org.
Whichever reverse mortgage lender you select, your $115,000 mortgage must be paid off from the new mortgage proceeds because a reverse mortgage must be recorded as a first mortgage. Then you can decide how to "spend" the balance of your reverse mortgage entitlement for any purpose you wish, such as a new car, travel or condo improvements.
Your reverse mortgage choices will be a lump sum, monthly lifetime income or a credit line, the most popular choice.
DEAR BOB: Can you explain the difference between a home equity loan and an equity line of credit? What is the cost and which do you recommend? -- Rufus R.
DEAR RUFUS: A home equity loan is really a second mortgage. It is for a specific amount, which you receive with a specific monthly repayment schedule, such as five or 10 years. The interest rate is either fixed or adjustable.
A home equity credit line is more flexible. You can borrow up to the loan limit, usually by writing checks provided by the lender. Then you can make monthly payments of interest only or more, pay off the balance entirely, or pay whatever amount you wish. When you repay the credit line, you can then re-borrow up to the maximum limit.
The interest rate on home equity credit lines is usually the prime rate or lower. For example, yesterday I received an offer from American Express for a home equity credit line at one-quarter percent below the prime rate, up to $250,000. That's better than my current Wells Fargo home equity credit line, so I might switch.
There should be no or low up-front home equity loan fees. Usually, there is an annual fee of about $50. Bankers love home equity credit lines because of the ultralow default rate.
DEAR BOB: I will be making the final payment on my home mortgage this month. What documents should the lender provide to me? Also, I want the title deeded to my living trust. -- Naomi G.
DEAR NAOMI: Paperwork procedures vary by state and whether you have a mortgage or a deed of trust.
Your lender should provide you with evidence of a recorded satisfaction of mortgage or a deed of reconveyance. Also, the lender should send you either the original promissory note or a copy marked "paid in full" signed by an authorized officer. You also should receive a check for any balance in your escrow impound account.
As for deeding the title for your home to your living trust, you can sign and record a quit claim deed from yourself to your living trust. Consult a lawyer for details.
DEAR BOB: About four years ago, I paid a $1,000 deposit on the purchase of a condo, but the deal did not go through because of a credit problem. I called the seller's lawyer to ask him to return my deposit, but he said I couldn't get a refund without the seller's written approval.
The seller refused to refund my money. My lawyer wrote several letters to get my $1,000. No results. The $1,000 sits in an escrow account. How can I get the money? -- Sheldon F.
DEAR SHELDON: Because this happened four years ago, I fear that the statute of limitations has expired. Because the $1,000 is such a small amount, your least expensive recourse is to sue the condo seller in small claims court where the condo is located.
Let the judge decide if you are entitled under the contract to the refund of your $1,000. That should resolve the dispute, with either you or the seller getting the $1,000.
DEAR BOB: I own a two-week interval timeshare in Saint Martins. The maintenance costs and airfare have become too much for me. I tried selling with no results. If I stop paying the annual maintenance fee, can I be sued? -- Jerry R.
DEAR JERRY: Some timeshare associations are nasty when it comes to collecting unpaid annual maintenance fees. A few even report unpaid fees to the credit bureaus, thus ruining your credit. Others aren't so aggressive and let timeshare owners walk away, losing their timeshares for non-payment of annual fees. Because your timeshare is in another country, you probably won't be sued in the United States.
Before you default, I suggest you politely check with the timeshare management firm to see if you can quit claim your timeshare to the management association without adverse results.
DEAR BOB: In 2000, I bought my mobile home with a mortgage from Conseco. I pay 11 percent interest, I owe about $6,500 and have excellent credit. Recently I received an offer from another bank for a fixed 6.9 percent interest rate. Should I pay off my existing mortgage? -- Jo Ann M.
DEAR JO ANN: Yes. Just be sure there isn't any catch to that 6.9 percent offer, such as an increased interest rate after six months or a year. Your current 11 percent interest rate is outrageously high.
DEAR BOB: How much homeowner's insurance do I need? I am retired on a limited income. I recently inherited three houses, all more than 30 years old. I carry only liability insurance on these houses. My insurance agent insured the houses for just a third of their replacement costs, based on current market value. Is this enough? -- Patricia H.
DEAR PATRICIA: Please consult at least three homeowner's insurance agents to compare their quotations for your situation. From your letter, it appears you are under-insured.
But forget market value. What you need to consider is the cost to rebuild if the house burns down. In addition to liability insurance in case an accident occurs on your property due to your negligence, you need replacement cost insurance. Your tenants are responsible for their contents so their furnishings need not be insured.
Only by consulting at least three insurance agents representing different insurers can you make an informed decision which insurer is best for your situation.
Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif., 94010; Web site: www.bobbruss.com.
(c) 2004, Inman News Service