I want to refinance my mortgage, but I’m about to turn 70. Is it wise to refinance at this point in my life?

I hope you can help me figure it out. I am 69 years old and will be 70 at the end of the month. I have been offered a cash out refinance loan and need to decide whether to get a 15 or 30 year loan. My monthly obligation would obviously be higher for the 15 year loan.

I may not live – I probably won’t live long enough to pay either, or even finish the 11 years left on my current mortgage, for that matter. I am diabetic, let alone other disabilities. The mortgage lender knows my age, but the choice is mine.

Normally I assume one’s heirs would have to deal with it, based on the will, but I have no 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 lives with a woman, but they chose not to marry.

My brother and I have been estranged since 1990. I don’t plan to bequeath him anything of value — I was really torn when our mother died, aside from the fact that I don’t really have anything of much value. I don’t want to leave him a mess. He is 67 years old and who knows if he will be alive when I die. Then there’s my niece, his only child, who I barely know. She has never tried to correct this fact since she became an adult. She is 38 years old, single and has no children. I have 33 or more second cousins, but no relation for almost 30 years to the few I ever knew.

My hurt and resentment towards my brother and niece should not negate my obligation to leave a will. It’s my blood, after all, and I’m not emotionally attached to any nonprofit. I have close friends that I met as early as 1954 to 1966, but no significant others.

Meanwhile, I owe about $33,000 on my current mortgage. I am requesting a $30,000 cashout, which I plan to use for home improvements. The appraisal is waived, but similarly sized units in my condo have sold for between $285,000 and $315,000. I live in a suburb of Los Angeles. The current monthly payment is $458, including property taxes, with an interest rate of 5.25%. The new payment is $531 at 3.28%. It’s not a huge difference considering what all the hype says the current refi rates are, but the debt-to-income ratio isn’t negative.

“When I die who gets stuck with the unpaid balance? Does the lender undertake it?’

Right now my only “real” income is Social Security and $900 my dad sends me monthly from a trust account. I plan to go back to work next year because I’m bored out of my mind, but this 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 in addition to the remaining mortgage and cash.

When I die, who gets stuck with the unpaid balance? Does the lender take it over? Doesn’t someone have to deal with whatever problem there is, or get the balance if it’s sold? Am I right that it is irrelevant whether I get a 15 year or 30 year loan as I may die before either is paid off?

Since the projected loan is significantly less than the home’s value, are there other kinds of issues that whoever my heir is going to have to deal with? Of course, another earthquake could happen, but short of some unforeseen disaster or my payments being late, who could legally be forced to handle any issue if I don’t leave a will?


Refinance Golden Girl

“The Big Move” is a MarketWatch column that examines the ins and outs of real estate, from navigating the new home search to applying for a mortgage.

Have a question about buying or selling a home? Want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.

Dear Refinance,

I want to start by answering 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 the monthly payment is higher on a 15-year loan — that’s true. But it can be even higher than you realize (unless the lender has already written off the difference.) For example, for a $100,000, 30-year mortgage with a 3% interest rate, the monthly payment would be about $422. If the same loan had a term of 15 years, the monthly payment would be about $691.

To highlight, the monthly payment for a 15-year mortgage is about 64% higher. Often, people are attracted to a 15-year short-term loan because it saves them interest in the long run. But for someone on a fixed income, that difference in monthly payment can make a huge difference.

The monthly payment on a 15-year loan is about 64% higher than a 30-year loan.

As you said yourself, it’s not clear you’ll live long enough to see the loan paid off either way. So the long-term savings that would result from the short-term would probably not be worth it. Are you relying on your father’s financial support now, but will that continue when he dies? If not, again, the higher monthly payment than a 15-year loan can suddenly become completely unaffordable.

For whoever gets the house when you die, it won’t make a difference if the mortgage was for 15 or 30 years when it comes to resolving the debt. Indeed, when we die, our housing-related debts still need to be paid.

In your case, it looks like you either don’t have a will or you haven’t designated who will inherit your assets after you die. Most states follow a process to determine who is eligible for inheritance, starting with spouses and children, followed by grandchildren. In cases where none of these individuals exist, then the state will consider other relatives, including siblings, nieces and nephews. The state can also inherit the property itself.

If you die without a will and the state doesn’t designate a legal heir to the property, then in theory your mortgage lender or partner will foreclose on the home to cover the loan. If an heir has been identified or if you have named one, most states have laws to protect their rights in the home. When you die, your heirs will inherit the title to the home, but not the mortgage. Home loans often include a due sale clause that requires the loan to be repaid if the home is sold — because that’s when the title is transferred.

When title is transferred through inheritance, the laws usually protect the inheritor. They can take over the mortgage and keep making payments. In some cases, they can transfer the mortgage to their name, or they can sell the home to pay off the loan and pocket the remaining proceeds afterward.

Feel free to think beyond blood relatives when considering heirs.

If I may go a little further, I would advise you to reconsider who is worthy to receive your inheritance. By nature, most of us think of leaving our worldly possessions to blood relatives — but in my view, the definition of family is broader than that. Your brother has brought you grief and you say that you basically have nothing to do with your niece.

It sounds like you have a lot of friends that you have rich relationships with. Sure, they may not be romantic in nature, but I’m sure these friends bring joy and comfort to your life. These people are your chosen family and deserve every right and privilege normally reserved for blood relations. Indeed, you can bequeath your possessions to a friend rather than a family member.

Maybe your friends aren’t interested in inheriting your apartment, but I’d talk to them to see what they’d think of such a gift. Perhaps they themselves have a child or other relative who could benefit from inheriting a home to live on (or the financial value of that property.)

You’ve worked hard to maintain your home, and you should feel comfortable knowing that it will go to someone you care for after you pass away. Whoever you identify as your heir, inform them of your plans. That way you won’t be shocked by your passing and can feel well equipped to handle the various tasks that come with an inheritance.

By emailing your questions, you agree to them being 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 in all media and platforms, including through third parties.

Leave a Reply

Your email address will not be published.