Mortgage?

[Donna423]

I inherited a house. It needs a LOT of work. Major repairs. For the past four years I have been doing repairs a little at a time. Consequently, because all of my extra money has been going into the house I have started to get into CC trouble. I took out a loan from a finance company at a very high interest rate. I still owe about $6,000 on it. I also owe about 6,000 on my car at 13% and I also owe $20,000 in inheritance taxes on the house at about 25%! I really don't want a mortgage. I am single and 50 years old. I feel like it is my only security. I went through a divorce and it also ruined my credit. I am ready to walk away from the house and just go rent an apartment. I appreciate you thoughts.

[bjl584]

I agree with you. Sell the house and get yourself into an affordable apartment. The money that you get from selling the property should help to pay down a good chunck of your debt (if not all of it depending on the condition/size/location of the house.) You will then be free to start to tackle any debt that may be left.

[Donna423]

My total debt including the inheritance tax is only $35,000. House is worth much more but I am really on the fence with whether to put a mortgage on it or just keep paying down the debt with high interest rates.

[bjl584]

Originally Posted by Donna423

My total debt including the inheritance tax is only $35,000. House is worth much more but I am really on the fence with whether to put a mortgage on it or just keep paying down the debt with high interest rates.

Are you talking about opening up a HELOC on the property to do the repairs? You could probably roll all of your debt onto that. It won't fix your problem, but it will get your interest rates down, and your debt would be tax deductible. Don't even think about doing that if you are still thinking about selling the home near term.

[Donna423]

Thanks, Brian.

I am really struggling with this. Instead of a HELOC I was thinking of doing an equity loan with a fixed rate. Paying off the high rate debt would improve my credit score and then It would free me up to throw extra payments onto the mortgage. I want to be debt free asap and would not want to carry a 30 year mortgage. I am not going to borrow to finish repairs, as I am getting by doing it little by little and not incuring any more debt. I appreciate your comments.

[Petunia 100]

Why do you owe inheritance taxes? Any tax owed should have been paid by the estate. Can you explain this?

Personally, I would not make this decision hastily. Look at all of your options and crunch numbers before proceeding.

What is the house worth as is? If you sold it and paid all of your debts, how much would you have left?

Is the house too large for you, or is it about right? Does it require a great deal of upkeep? Are you willing to do this upkeep? Would you be happier in an apartment?

[Donna423]

The house is right around 1,000 sq. ft. a little cape cod. I live alone and it is perfect. I have a large yard - 120 x 125 that backs up to the woods, which I enjoy. Very few of my neighbors have decent size lots - they have all subdivided. I pay $100 per month do have the landscaping done. If I sold before it is finished and in this market I know I would get much less - I would be selling it for someone to tear down and subdivide the lots.

I don't know if I would be happier in an apt. I know the maintenance would be less. Sometimes I think so, but then I go to visit my daughter and can't find a parking space! My plan was to finish the house and stay there until I retire - eventually sell to help fund my retirement and move South.

1) I could get a mort. to finish the repairs and then still have the unpaid debt at high interest. 2) I could get a mort. and pay off the debt and still have to finish the house. 3) I could keep on the way I am trying to throw some extra towards the debt. 4) I can sell - pay off everything and have enough (comfortably) to start over with my credit repaired. Although I would not have enough to be mortgage free again.

[bjl584]

Originally Posted by Donna423

The house is right around 1,000 sq. ft. a little cape cod. I live alone and it is perfect. I have a large yard - 120 x 125 that backs up to the woods, which I enjoy. Very few of my neighbors have decent size lots - they have all subdivided. I pay $100 per month do have the landscaping done. If I sold before it is finished and in this market I know I would get much less - I would be selling it for someone to tear down and subdivide the lots.

I don't know if I would be happier in an apt. I know the maintenance would be less. Sometimes I think so, but then I go to visit my daughter and can't find a parking space! My plan was to finish the house and stay there until I retire - eventually sell to help fund my retirement and move South.

1) I could get a mort. to finish the repairs and then still have the unpaid debt at high interest. 2) I could get a mort. and pay off the debt and still have to finish the house. 3) I could keep on the way I am trying to throw some extra towards the debt. 4) I can sell - pay off everything and have enough (comfortably) to start over with my credit repaired. Although I would not have enough to be mortgage free again.

If you plan on staying in the home until retirement, then look into a home loan with a 15 year term. You should have enough to cover your debts and your renovations. Your sticking point may be your credit score. You'll have to work to get that up by paying down your current debts aggressively. Can you list your income and your other expenses and assets?

[Donna423]

Here goes:

My only asset currently is the house which is only worth about $100K as is. I cashed in all of my jewelry, mutual fund, etc. during the divorce. As stated above the total debt is about 30K at high interest. $20K of that debt is inheritance tax as I inheritated the house from a "friend" and was taxed at a high rate.

Bring home per month = $3,200.

Real Estate Tax - $350.
Inheritance Tax - $300. (25%) 20K balance
Loan - $250 (25%) - $6K balance
Car - $250 (13%) - $6K balance
CC - $150 (29%)- 2K balance
Phone - $100
Elect - $100
Cable - $100
Groc - $250
dog groomer - $60
lawncare - $100
car ins - $120
house ins - $80
train - $90
gas - $120
water -$60
clothing - $100

Needless to say, anything extra is going into repairs. I have children/grandchildren and trying to keep up with birthdays/holidays has helped to incur some of the debt. (my fault totally). I am trying to stop the bleending. I appreciate you advice.

[Petunia 100]

Still not understanding how you could inherit 100k and owe 20k in taxes. Was it a large estate?

Did you borrow the 20k?

[Donna423]

Class D Inheritance - I was taxed at a 15% rate on the estate. It was not large. About $120,000 value.

[Petunia 100]

Oh, so this is owed to a state? Are they charging you 25%, or did you borrow the money elsewhere?

I understand wanting to keep your home mortgage free, and I also understand not wanting to pay such huge interest rates. Both are valid viewpoints.

I think your first order of business is to decide if you want to keep the home or not. Once you make that decision, the others will fall into place. Easier said than done, I know.

Do you have a sentimental attachment to the house?

How is your credit score now, do you know?

[bjl584]

Originally Posted by Donna423

Here goes:

My only asset currently is the house which is only worth about $100K as is. I cashed in all of my jewelry, mutual fund, etc. during the divorce. As stated above the total debt is about 30K at high interest. $20K of that debt is inheritance tax as I inheritated the house from a "friend" and was taxed at a high rate.

Bring home per month = $3,200.

Real Estate Tax - $350.
Inheritance Tax - $300. (25%) 20K balance
Loan - $250 (25%) - $6K balance
Car - $250 (13%) - $6K balance
CC - $150 (29%)- 2K balance
Phone - $100
Elect - $100
Cable - $100
Groc - $250
dog groomer - $60
lawncare - $100
car ins - $120
house ins - $80
train - $90
gas - $120
water -$60
clothing - $100

Needless to say, anything extra is going into repairs. I have children/grandchildren and trying to keep up with birthdays/holidays has helped to incur some of the debt. (my fault totally). I am trying to stop the bleending. I appreciate you advice.

OK.

I'm coming up with $2580 per month in expenses. With a take home of $3200, that leaves you $620 per month. Where is that money going? That's $7440 per year that can be used for debt repayment. Another way to look at it would be you would be debt free in about 5 years if you changed nothing about your current lifestyle.

Onto your expenses. I see a lot of things that could be cut back. I would cut back on the phone service and maybe consider dropping the cable. Also, I have a dog, and I don't spend anywhere near $60 a month on grooming. Can you cut that back to a quarterly visit? Clothing expenses seem high too. There are probably other areas where can cut back too.

You should try to get the interest rates down on your debts. I'm not sure if they will because of your credit score, but calling and asking them is free.

In the meantime, I would buckle down on your spending as much as possible and work on getting all that high iterest debt paid down.

[Donna423]

The house is very sentimental. I also forgot to mention that my income just recently went from 2800 to 3200. My heating is very expensive - almost 200 per month also in the winter for oil heat. I just bought a new heater so we will see how that goes. I have asked for lower interest rates already. no deal. As I said, the remainder of the money has been going to repairs. I like the idea of the 5 year deal. Thanks to everyone for their ideas.

[artwest]

I'm not getting a 5 year deal, my figures come up to more like a 3 year deal.

Your total expenses listed are $2,580 per month, I added another $200 for heat and $120 for other expenses/entertainment for a grand total of $2,900. Your take home pay is $3,200 so you have an extra $300 per month to apply to your debt.

Throw the extra $300 at your credit card. You owe $2,000 and will be paying $450 per month. In about 5 months that should be paid off. Then take the $450 that you were paying on that and add it to your loan. You were paying $250 per month on that, you will now be paying $700. The balance should be down to around $5,800 by this time so in about 9 months that should be paid off. It has now been 14 months and you have paid off your loan and CC.

Next take the $700 that you were paying on your loan and add that to the car so you will now be paying $950 on the car. The balance on the car is probably somewhere around $5,300. You should have that paid off in about 6 months. Then take the $950 that you were paying on the car and add it to the $300 that you were paying on the inheritance tax for a total of $1,250. The inheritance balance is probably down to about $14,000 by then so in 12 months that would be paid off.

My calculations show after 32 months you are debt free plus you have freed up $1,250 per month to build an emergency fund, help fix up the house and/or invest.

[Eric80]

Interest rates are low at the moment and therefore if you get a fixed rate for an x amount of years then maybe it is worth considering? Also the housing market has fallen and you may not get it true value for an x amount of years. Maybe consult a financial advisor to see what your options are and get the house valued to see what value it is.

[snafu]

If you decide you want to remain in the house until retirement...mortgage loans offer best interest rates. Don't plan on super low rate as your credit rating will affect the rate you get.

Christmas is coming and I hope you can make it clear that 'gran' needs to look after some financial issues. Your DKs and DGKs need to understand that holiday spending will be restricted. Plan to make cookies or crafts rather than buy/spend/debt. The holidays are not the time to cave to the all too powerful marketing machine who suggest love can be measured by sums spent.

[LittleMsMom]

You said you were slowly paying for repairs. What repairs are needed at this time? What/how much are NEEDED new roof, siding and how much are wanted (painting, new carpet etc).

I would maybe see what kind of interest rate you could get on a loan; if it is less than 13% get for 34K and have it be a LOW Term Loan 5-7 years. This will free up some wiggle money for repairs in your budget.

You say your credit is bad...What is your score?

If you can't get a loan that is lower than what you are currently paying, just start paying off that debt and then try again once you have made some progress.

If you can't do anything but pay off the debts at there current level, I would put all your extra funds into pay off the debts in the following order:
#1 CC-29%-2k
#2 Loan-25%-6K
#3 Tax-25%-20K
#4 Car-13%-6K
#5 Save for House Repairs

If you can reduce spending to make it go faster I suggest:

oPhone - $100 (is this land line and cell phone? Maybe drop the landline or if all cell phone reduce your plan or go pre-paid) I pay $30 per month for 1,000 text, 1,000min and 1MB web, I could get unlimited for $45.
oCable - $100 (is this internet also?, I would drop the cable and IF you had to have TV just get Netflix streaming.)
odog groomer - $60 (Could you learn to do this yourself?)
olawncare - $100 (Maybe shop around or learn to do this yourself)
ocar ins - $120 (Call for quotes, see if there are any discounts you could be getting that you are not currently getting)
ohouse ins - $80 (could this be buddled with car ins for a discount?)
oclothing - $100 (Why so high??? Maybe try to make due with what you have until your debts are paid off)

You could possibly reduce this by $500 a month so you would have a much faster payoff.

[glmatt15]

Property is generally among the first assets people acquire. But, compared to other assets like, say, stocks, it's relatively illiquid, and poses a bit of a problem when you need quick cash. However, many financial institutions now offer loans against property. So, when Anant Kumar, an engineer with a well-known company, needed a personal loan of Rs 10 lakh urgently, he decided to mortgage his flat for a bank loan.
But to his surprise, the bank asked him for proof of income. "If I am mortgaging my house worth Rs 65 lakh, why am I being asked for income proof for a loan of Rs 10 lakh only?" was his perplexed query.
The answer lies in the illiquid nature of property. It's not easy for the bank to sell Kumar's house to recover the loan, if he defaults. As property is not a standard product, its price may vary from area to area and with time. Also, banks will not find it easy to evict existing occupants from the house to sell it.
Therefore, banks prefer that you pay back the loan from your income stream and not by selling the security -- that is, the house. Thus, you need to submit your income proof when applying for loan against property.