If tenants still want to buy, they must play by new rules
Can you take advantage of the tax benefits associated with the mortgage interest you pay, which you will lose if you pay off the loan?
Over the years, I have represented too many clients who were "house rich but cash poor." What's the real advantage of having the house free and clear? Or turn this around: What's the disadvantage of having a mortgage? If and when you die, does it really matter to your heirs whether you have a condo free and clear of a mortgage? I don't think so.
In my opinion, assuming you can qualify for a refinance loan, you should contact your current lender and see if it will reduce the interest rate. You are currently paying 6 percent, but interest rates (as of this writing) are hovering around 4 percent.
If you can refinance, I submit you will accomplish your objectives as well as my concerns.
And whether or not you refinance, there is a compromise position. Every month, add a little extra money when you pay your mortgage. That will reduce the loan principal, and shorten the term of your loan. If you do this, however, make sure you note on your check and on the payment coupon that this is "extra principal."
DEAR BENNY: Due to the death of my former husband, I find myself owning a rental cottage with my two children. Due to the tough real estate market, and also family sentiment, the kids (ages 20 and 24) and I want to hold on to it as a rental property at least for a couple of years. I fully understand that co-owning property with children is not recommended, but the real estate market and the family memories for now make our decision.
We will have the property retitled. As 50 percent owner can I require some sort of property use agreement for the kids (who'll each own 25 percent) and me to sign? I want to avoid the family cottage from becoming a hotbed of nightlife or other misuse. And if some sort of property use agreement is done, who does that for us: a real estate or estate attorney? --Cyndi
DEAR CYNDI: Yes, you can enter into a property use agreement with your two children, and a real estate attorney can assist you. It's no different from the co-ownership agreements I draft for unmarried clients.
But let me ask you a question: Why do you have to put them on title? As you know, in general I do not think it's a good idea, primarily for the tax consequences.
You should go on title on your own, but prepare a last will and testament giving your two sons the property on your death. You indicated that this might be a rental property. If so, shouldn't you keep all of the rental income?
And you further indicated that you might sell in a couple of years. Again, why complicate title, so that you don't have to get your son's consent for any such sale?
My suggestion: Put the house in your name, and if your kids want to use it, spell out the rules and regulations. You may even want to charge them a security deposit just in case there is any damage caused by them or their guests.
Incidentally, you should also check with your tax adviser to see whether there would be any taxable consequences to you should you decide to add your sons on title. The Internal Revenue Service might consider that to be a gift.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to firstname.lastname@example.org.
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