Ask Liz Weston

Get smart with your money

mortgage

Friday’s need-to-know money news

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AirfaresToday’s top story: How to find the best airfare deals. Also in the news: Financially preparing for a job search, how “reason codes” can help improve your credit, and ten money moves to make before the end of the year.

3 Insider Tips for Getting the Best Airfare Deal
How to get the best possible deal on flights.

Preparing Financially for a Job Search
Three tips to help you survive the hunt.

Pay Attention to Credit Report “Reason Codes” to Improve Your Score
These codes can help you improve your credit.

10 Smart Money Moves to Make Before the Year Ends
Don’t put off your finances until the new year.

Want to Pay Off Your Mortgage Early? Not So Fast
Why you should carefully consider where your money should go.

Q&A: When elderly parents are in financial trouble

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Dear Liz: My in-laws just informed us that they have gone through their retirement fund and soon won’t be able to pay their mortgage. They borrowed against the house they’ve lived in for 30 years and currently owe $325,000. They are devastated, so I am trying to figure out the best way for them to stay in their house in their final years, as they are both 73. They have about $300,000 in equity but do not want to sell. They are willing to sell the house to my wife and me at their current balance. We would make the payments and they remain in the house. When they pass, the house would be ours. They looked into a reverse mortgage but this would cover only the payments, not taxes, insurance or maintenance. What is the best way to do this? Do I get a loan and purchase outright? Do I contact their bank and see if I can assume their loan? Do they quit-claim the home to my wife and me? My wife and I can afford to do this, but we want to make the right financial decision.

Answer: Before you do anything, please consult a tax professional and an attorney with experience in estate and elder law.

It’s unlikely the lender will allow you to assume the loan, so you probably would need to set this up as a sale of the home with you and your wife obtaining a new mortgage.
But their plan to sell the house to you at a below-market value could create gift tax issues and could delay their eligibility for Medicaid, should they need help paying for nursing home care.

There are other risks to your in-laws. Your creditors could come after the home if you lose a lawsuit, for example. You could sell the home without their consent, and you would have a claim on the property if you and your wife split up.

Then there are the risks to you. You say you can afford to make the payments (and presumably pay the taxes, insurance and maintenance as well), but what happens if you lose a job or suffer another financial setback?

All of you need to understand the risks involved, and your alternatives, before proceeding.

A sale of the home or a reverse mortgage may well prove to be a better choice. A reverse mortgage wouldn’t completely eliminate their home costs, but would substantially lower them — whoever winds up paying the bill.

Monday’s need-to-know money news

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debt collectorsToday’s top story: How to prove that a debt isn’t actually yours. Also in the news: How your credit score impacts your mortgage rate, the laws debt collectors must adhere to, and how to protect your identity during World Cup madness.

How Can You Prove a Debt Isn’t Yours?
How to determine if a debt is actually yours.

How credit scores impact your mortgage rate
The lower the score, the higher the interest rate.

Know the law when dealing with debt collectors
Don’t let yourself become intimidated.

5 Ways Hackers Could Target You During the World Cup
Stick to well-known sites and be careful with apps.

7 Ways to Help Get Your Child Out of Debt
How to help without burdening yourself.

Does mortgage servicer Ocwen owe you money?

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ForeclosureMortgage servicer Ocwen was ordered today to cut clients’ loan balances by $2 billion and refund $125 million to the nearly 185,000 borrowers who have already been foreclosed.

Ocwen is the country’s largest non-bank mortgage service company according to the Consumer Financial Protection Bureau, which filed the proposed court order along with regulatory authorities in 49 states and the District of Columbia. Mortgage servicers collect payments from borrowers and forward the money to the owners of the loans. Servicers also handle loan defaults and foreclosures.

The CFPB blasted “Ocwen’s systemic misconduct at every stage of the mortgage servicing process,” saying it took advantage of homeowners by charging unauthorized fees, improperly denying loan modifications and engaging in illegal foreclosure practices.

“Deceptions and shortcuts in mortgage servicing will not be tolerated,” CFPB Director Richard Cordray said in a press release. “Ocwen took advantage of borrowers at every stage of the process. Today’s action sends a clear message that we will be vigilant about making sure that consumers are treated with the respect, dignity, and fairness they deserve.”

The settlement administrator will contact eligible homeowners with a notice letter and claim form. You’ll find the CFPB’s explainer here.

Monday’s need-to-know money news

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Today’s top story: Changes are coming to the 2014 mortgage market. Also in the news: The privacy of your credit score, financial predictions for 2014, and how to avoid charitable giving tax mishaps. credit

What You Need to Know About the 2014 Mortgage Market
Seven possible changes to next year’s mortgage market.

How Private Is Your Credit Score?
The amount of people who know your credit score might surprise you.

10 Personal Finance Predictions for 2014
NerdWallet reads the financial tea leaves.

Giving to Charity? Watch Out for These Tax Traps
Your generosity could come with a hefty price tag.

Will Banks Ever Pay Savers More?
Why banks hate people who save their money.

Use inheritance to pay credit cards, not mortgage

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Dear Liz: I will be inheriting around $300,000 over the next year. My instincts are to pay down debt with this money. I have two homes and for practical reasons need to keep them. One home has a $260,000 mortgage balance at 5%. The other has a $130,000 mortgage at 4%. We have $35,000 in credit card balances. Some are telling us to invest. I think we should pay off all the credit cards and then pay down the larger mortgage by $100,000 or more. Am I on the right track?

Answer: Paying off your whopping credit card debt is a great idea. You need to figure out, though, what caused you to rack up so much debt and fix that problem. Otherwise, you’re likely to find yourself back in the hole.

Paying down a mortgage is a trickier proposition. Most people have better things to do with their money than prepay a low-rate, tax-deductible debt. Before they consider doing so, they should make sure they’re saving adequately for retirement, that all their other debt is paid off, that they have a substantial emergency fund of at least six months’ worth of expenses, and that they’re adequately insured with appropriate health, property, life and disability coverage. Those with children should think about funding a college savings plan.

If you’ve covered all these bases, then paying down and perhaps refinancing the larger mortgage makes sense.