Don't enter reverse loan for the wrong reason
Q. we inquired about obtaining a reverse mortgage to help our daughter and son-in-law build a new house, and learned that the interest charged on the loan was compounded. Not only that, the interest rate is several points higher than if we took out a line of credit. Our lawyer told us that if the value of our condominium did not increase, all of our equity could be used to pay the interest on the reverse mortgage. The mortgage company said that if the value of the condominium rose by 3 percent a year our equity would be preserved. The lawyer suggested that borrowing from a line of credit made more sense than using the reverse mortgage.
G.M., Calgary, AB., Canada
A. "I agree with your lawyer," says David Bendix, who heads up Bendix Financial Group, Uniondale, N.Y. "Reverse mortgages are usually taken out by elderly people seeking to draw down their home equity for their own needs, often in their latter days."
In a reverse mortgage, the lender makes monthly payments to you, taken from the equity in your home.
"But banks can make a lot of money from the charges on reverse mortgages, in part because they are not competitive loans, such as home-equity loans," Mr. Bendix says. "In a situation like this, where you want to help a married child, I would instead go for a home-equity loan, which should have a lower interest rate."
Q. Is there a way to buy Treasury notes directly without paying a brokerage fee?
K.T., Ventura, Calif.
A. Yes. Contact the US Treasury at "Treasury Direct" (www.publicdebt.treas.gov). To order an information packet, call 202-874-4000.
Q. We have inherited a small amount of money from a relative in another state. The other state exempts inheritance taxes on this particular amount of money. Our state, however, imposes a tax on such amounts. Would we owe any tax, since the bequest came from another state?
A.F., New York
A. You're off the hook, says Gary Schatsky, an attorney and fee-only financial planner in New York.
Normally, inheritances are not taxed by a state, unless the deceased person "had assets within the state," Mr. Schatsky says.
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