Smart Money: Should I refinance my house to borrow $20K?
DEAR BRUCE: I just bought a house for its appraised value of $107,000 with no money down. I want to redo the basement, update the electric and add central air. I can get a five-year, low interest home loan at 3 percent. I need to borrow about $20,000. Is this the way to go, or do you think I should refinance? — L.H. , via e-mail
DEAR L.H.: It’s unlikely you would be able to refinance since you bought a house with 100 percent financing. The only type of loans that offer 120 percent or 130 percent of value are nothing more than high-interest personal loans. Not a good option. I cannot imagine who would loan you money at 3 percent under any circumstances, particularly since you have no equity. I suggest you start a savings plan to pay for these improvements.
DEAR BRUCE: My daughter lives in California and has been in the process of getting a divorce for two years. Her attorney charged big bucks, but was always getting a continuance because his office was not prepared. Apparently there was a lot of office turmoil, and the attorney was not getting the information from my daughter through his paralegals. My daughter fired him, and now he is suing her for $5,000. Who is in charge of the attorneys? Who should she report him to? I believe that there is a “good old boy’s” network. She also believes that he has been giving information to her husband’s lawyer, because they have information that could have only come from her attorney. What do you suggest? — M.S., via e-mail
DEAR M.S.: I suspect there is another side to this that either your daughter does not understand or that she is not sharing with you. The attorney will expect to be paid for things he has completed on your daughter’s behalf. If he is excusing his shortcomings because of problems with his paralegals, he is not the individual to use. He is the boss, and he must share the responsibility.
I do not agree there is a “good old boy’s” network. Many attorneys are happy to sue their legal brethren. There is also an ethics committee of the local bar association in the county where this individual practices. Your daughter may want to contact them; there may be some room for negotiation there. Until I had the whole story, I would be very careful what I said to whom.
DEAR BRUCE: I would like to get your opinion on whether we should pay extra principal amount on our home mortgage. Both my wife and I are in our mid-50s, have decent savings and pension plans for our retirement, own a house with a market value of $130,000 with equity of $40,000. I am thinking of paying $1,000 each month toward extra principal on the mortgage. Is this the right thing to do? — R.J., Saginaw, Mich.
DEAR R.J.: You failed to tell me what the interest rate is on your current mortgage of approximately $90,000. If you have a low rate, which I assume you do, I wouldn’t be anxious to pay this off any earlier than necessary. That doesn’t mean I wouldn’t save the money.
Taking taxes into account, the likelihood is you should be able to outperform the interest you are paying on your mortgage and more important, as interest rates go up, as I believe they will over the next decade, you will have use of very low-cost money. Given that circumstance, I would invest the money elsewhere even if it means putting it into some type of very secure instrument that will let you sleep well and only amount to a break-even venture at this time. Four or five years from now the availability of cheap money could work very much to your advantage.
Send your questions to: Smart Money, P.O. Box 503, Elfers, FL 34680. E-mail to: bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.