I hope you can help me figure this out. I am 69 years old and will turn 70 at the end of the month. I have been offered a cash out refinance loan and need to decide whether to take a 15 year or 30 year loan. My monthly obligation will obviously be higher on a 15 year loan.
I may not – likely won’t – live long enough to pay off, or even finish, 11 years remaining on my current mortgage, for that matter. I have diabetes, not to mention other illnesses. Mortgage lenders know my age, but the choice is mine.
Normally, I guess one’s heirs would have to settle it, based on the will, but I don’t have any heirs in my opinion. I am single, never married and have no children. My mother is dead, and my father is 97 years old. He lived with a woman, but they chose not to marry.
My brother and I have been estranged since 1990. I have no intention of leaving him anything of value – he ripped me off when our mother passed away, other than that I really don’t. have anything of value. I don’t want to leave him a mess. He’s 67 years old, and who knows if he’ll be alive when I die. Then there was my niece, his only child, whom I barely knew. She has never tried to improve on that fact since becoming an adult. She is 38 years old, single and childless. I have 33 or more second cousins, but none in nearly 30 years with the few I’ve ever met.
My hurt and resentment towards my brother and niece should not negate my obligation to leave a will. They are my blood, after all, and I am not emotionally tied to any nonprofit. I have close friends whom I met between 1954 and 1966, but no one else.
Meanwhile, I owe about $33,000 on my current mortgage. I am requesting a cash withdrawal of $30,000, which I intend to use for home improvements. Appraisal is waived, but similar-sized units in my apartment 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 payout is $531 at 3.28%. Not a huge difference considering all the ads that say what the current refi is, but my debt-to-income ratio is not bueno.
“‘When I die who will be stuck with an outstanding balance? Does the lender assume? ‘”
Right now my only “real” income is Social Security and the $900 my dad sends me monthly from a trust account. I plan to go back to work next year because I’m bored, but that has nothing to do with the loan. The amortized 30-year loan payment will include closing costs, prepaid taxes, and more than $17,000 in outstanding debt along with the remaining mortgage and cash.
When I die, who is stuck with an outstanding balance? Does the lender assume? Who doesn’t have to deal with whatever the problem may be, or get the balance if it’s sold? Am I right that it doesn’t matter if I take out a 15-year or a 30-year loan because I could die before either is paid off?
Since the loan is intended to be significantly less than the home’s value, are there other types of problems my heirs will have to deal with? Of course, another earthquake is possible, but with some unforeseen disaster, or the fact that I am owed payments, who can be forced to deal with any problems if I do not leave a will legally?
Golden girl refinance
‘Big move‘ is a MarketWatch column that looks at property details and characteristics, from navigating your search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next go? Email Jacob Passy at TheBigMove@marketwatch.com.
I would like to start by addressing your question about the length of the loan term, as I am concerned that you may be underestimating the difference between a 15-year loan and a 30-year loan.
You know that the monthly payment is higher on a 15-year loan – that’s true. But it can be higher than you realize (unless the lender has made it clear the difference.) For example, for a $100,000, 30-year mortgage with 3% interest, monthly payments month would be about $422. If that same loan had a term of 15 years instead, the monthly payment would be about $691.
For emphasis, the monthly payment on a 15-year mortgage is about 64% higher. Usually, people are attracted to the shorter term on a 15-year loan because it saves them interest in the long run. But for someone with a fixed income, the difference in monthly payments can make a huge difference.
“The monthly payment on a 15-year loan is about 64% larger than on a 30-year loan.”
As you’ve told yourself, it’s not clear you’ll live long enough to see the loan pay off either way. So it’s very likely that the long-term savings brought about by the short-term won’t be worth it. Now you’re relying on your dad’s financial support, but will that continue when he’s gone? Otherwise, again, the higher monthly payments from a 15-year loan can suddenly become completely insolvent.
For anyone who receives the home upon your death, it makes no difference whether the mortgage has a term of 15 or 30 years when the debt is settled. Indeed, when we die, our housing debts remain payable.
In your case, it looks like you either didn’t have a will or it’s not clear who will inherit your estate upon your death. Most states follow a process to determine who is eligible to inherit, starting with the spouse and children, followed by grandchildren. In the event that no individuals are around, the state will consider other relatives, including siblings, nieces and nephews. The state can also inherit the property itself.
If you die without leaving a will and the state cannot determine the legal heir to the property, your mortgage lender or servicer would theoretically foreclose the home to cover the payment. get a loan. If an heir has been determined, or you designate one, most states have laws in place to protect their rights to the home. When you die, your heirs will inherit title to the house, but not the mortgage. Mortgages often include a sell-by clause that requires the loan to be paid off in full if the home is sold – because that’s when the title is transferred.
When the transfer of ownership occurs through inheritance, the law generally protects the heir. They can take the mortgage and continue to pay. In some cases, they may have the mortgage transferred to their name, or they may sell the home to pay off the loan and pocket the proceeds afterward.
“Feel free to think about more than just blood relatives when considering heirs.”
If I may go overboard a little, I suggest you reconsider who is worthy of your inheritance. In essence, most of us think about leaving our worldly possessions to our immediate relatives – but in my view, the definition of family is broader than that. Your brother has brought you grief, and you say you have almost no relationship with your niece.
It sounds like you have a lot of friends with whom you have rich relationships. Sure, they may not be romantic in nature, but I’m sure these friends will bring joy and comfort into your life. These people are the family you have chosen, and they deserve all the rights and privileges normally accorded by blood. Indeed, you may leave your fortune to a friend rather than a family member.
Perhaps your friends might not be interested in inheriting your apartment, but I would talk to them to see what they would think of such a gift. Maybe they themselves have children or other relatives who could benefit from inheriting a home to live in (or the financial value of that property).
You’ve worked hard to maintain your home, and you’ll feel comfortable knowing it will pass into the hands of someone you care for after you pass away. Whoever you identify as your heir, let them know about your plans. That way it won’t come as a shock when you pass away and they can feel well equipped to handle the various duties that come with succession.
By emailing your questions, you agree to have them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, across all media and platforms platforms, including through third parties.
https://www.marketwatch.com/story/i-want-to-refinance-my-mortgage-but-im-about-to-turn-70-how-would-that-affect-my-heirs-11637359138?rss=1&siteid=rss I want to refinance my mortgage, but I’m turning 70. How will that affect my heirs?