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Why timeline may not make financial sense

Ilyce Glink
Inman News

Q: Would it be a bad idea to refinance my home if I were planning on selling a year from now?

A: It's not a bad idea, but it may not be cost-effective. Look at how much it will cost you out of pocket to refinance and how much you will save each month. Then, calculate how many months it will take you to pay off the costs of the refinance. I'm guessing that it will take more than a year -- which means refinancing if you're going to sell in a year may not make much financial sense.

One final thought: In today's market, plans are easily made but not so easily kept. You might plan to sell your home in a year, but it might take a lot longer than you think. Just be aware that if your home is listed for sale, you will have a hard time completing a refinance of your mortgage. Many lenders will not refinance a loan if the home being refinanced is listed for sale or has been listed for sale recently.

Q: We have my mom's house in a trust. The trustees are her five children (me and my four siblings). Mom has suffered a stroke and can no longer take care of herself. Can the nursing home take her home's assets to pay for her care? We haven't sold the house yet, although it's been up for sale for almost a year now. Or is the house exempt?

A: It's unclear whether the house is at risk. It depends on what kind of trust has been set up, and when the trust was set up. Medicaid has a five-year lookback provision, so if she set this up within the last five years or if Medicaid considers a home in the trust to be her asset, the assets of the house may be at risk.

Please talk to an estate attorney or estate planner for more details.

Q: I have spoken to a certified credit counselor at CCCS of Greater Atlanta and may be interested in signing up for a debt management program (DMP), which would help me pay off my credit-card debt. I have heard different views about using a DMP and wanted to ask you some questions.

Does the fact that I'm in a DMP stay on my credit for up to seven years like a Chapter 13 bankruptcy? The agency says that once I am done with the program it never shows up that I was in a DMP.

Should I go into a DMP or will I trash my credit score? I don't know what to do. Please help.

A: There are a lot of misconceptions surrounding debt management programs, and I believe a lot of the misinformation comes from credit-repair scam shops that are looking for your business.

To the best of my knowledge, CCCS of Greater Atlanta is steering you straight: Being in a DMP will not hurt your credit (your credit score is probably already pretty awful) and it will not show up once you are done with the program.

In fact, CCCS works with a number of lenders nationwide to help facilitate the extension of new credit to those going through their DMPs. Getting new lines of credit open, and managing them well, will help you to repair your own credit history faster.

Q: On a recent radio program, I heard one of your listeners say he would be refinancing soon. He was going to pay about $3,300 in closing costs and was getting an interest rate of 5.5 percent.

I'm doing the same thing. Why am I paying $4,900 in closing costs to get the same 5.5 percent rate? Is this predatory lending?

A: There are many items that can change how much you're paying for closing costs, including where you're buying the home, the amount of prepaid interest on the loan, the size of your loan, your credit score, and whether you're paying points to buy down the rate.

But one thing is clear: Predatory loans look entirely different than the situation you describe. A borrower taking out a predatory loan might pay $10,000 in closing costs, 2 to 4 points (a point is 1 percent of the loan amount), and get an interest rate that looks similar to what you'd pay on credit card debt.

In the conventional mortgage world, there are many reasons why Borrower A's rate and loan terms are different from Borrower B's rate and terms. In some cases, real estate tax and insurance escrows are factored in by borrowers in determining what they will need for the refinance closing and those costs can vary greatly between homes and between homes in different states.