| Life Insurance Payout and Underwater Mortgage |
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olsonj112
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Location: Arizona
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| Life Insurance Payout and Underwater Mortgage |
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My wife and I expect to receive a significant payout of a life insurance policy from a recently deceased family member: approx $100,000-150,000. We have an outstanding mortgage of ~$255,000 (6.25%) and my best guess is that the home is worth ~185,000 (Zillow.com). We both currently have good jobs, ~200,000 in combined income; but we plan to move to another city next year when we find new jobs, we expect our income to remain relatively constant over this time.
I think my best option will be to use the life insurance to pay down the mortgage to ~150,000 and refinance for a lower percentage, then rent the home and hope that the value increases over a longer period of time (staying in the home ourselves is not an option). Is this the option that others recommend? We were seriously considering allowing the home go into foreclosure and live on cash for the next 5-7 years, but my thinking is that re-financing and renting for up to 10 years may be the better option.
My best guess is that I could rent the home for ~1200/month and have a mortgage of ~900 after taxes and insurance.
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Mon Jul 19, 2010 12:12 am |
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coaster
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Being an absentee landlord is difficult. Have you considered the additional expenses of doing that?
Another consideration: refinance the entire amount and invest the life insurance payout, or at least the portion you won't need to finance the move. You should be able to knock quite a bit off that interest rate right now.
~Tim~
Eye Candy : Why Whimsy
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Mon Jul 19, 2010 2:29 am |
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oldguy
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quote:
refinance the entire amount
coaster. I don't think they can refi, the loan is $255k and the house is only worth $185k - or maybe I'm not reading it right?
olson - If you followed your plan - ie, paying down $100k of the loan and doing a refi, your monthly savings would be $600.
It might be better to keep your $255k loan and retain the use of the $100,000 and invest it in 10% to 12% long term investments - with a goal of doubling it in 6 to 7 years. That extra account might be more valuable to you than the $600/m of cash flow. And also, the extra $100,000 account is a good emergency fund if you ever have trouble making the extra $600/m (a vacancy, etc). In a few years, the $255k will be paid down some, the house value will probably ease up to $250k - then you can re-evaluate - maybe use the $200,000 fund to pay it off, maybe not, maybe sell it, maybe not.
I have used a property manager for my rental houses for many years - it is an extra cost, but it has quite a few benefits - your PM keeps a waiting list of qualified renters, so you seldom have vacancies and you seldom get deadbeats. Plus a PM usually gets slightly higher rnet than you will with an individual ad - so the 'real' cost is minimal.
FYI - one reason that lottery winners often go bk is that they fail to keep the money in a block, they spend bits everywhere - essentially they look for ways to spend/invest it - 2 new cars, prepay the house, prepay their mother's houses, yada. From a financial point - a better plan is to invest the whole $150k block into 10% to 12% products where it doubles in 7 yrs - so $300k in 7 yrs, $600k in 14 yrs, $1.2M in 21 yrs, and so on.
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Tue Jul 20, 2010 1:46 am |
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coaster
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quote:
Originally posted by oldguy
quote:
refinance the entire amount
coaster. I don't think they can refi, the loan is $255k and the house is only worth $185k - or maybe I'm not reading it right?.
No, you're reading it right. 
The amount I meant was $185K but that doesn't leave much from the insurance, does it? And would a bank do what's essentially a zero-down? I dunno. You're probably right.
Sigh. I gotta look at the numbers closer. Been doing a heavy programming thing and my poor eyes are so tired. 
~Tim~
Eye Candy : Why Whimsy
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Tue Jul 20, 2010 4:21 am |
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olsonj112
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Location: Arizona
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Oldguy,
I've thought about keeping the mortgage as it stands and rent. However, when we bought the house the mortage rates were much higher, we pay ~$2000/month, and i think the most we could get from renting would be $1200/month in best case scenario. I agree that using a property manager is the best option if i rent the home, and found one that charges 10% of monthly rent which seemed reasonable to me.
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Tue Jul 20, 2010 1:46 pm |
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Keilysmith
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Most reverse mortgages are offered by the FHA Home Equity Conversion Mortgage (HECM) program. The program defines the rules of the percentage of equity in a home can be removed from the home, the amounts vary by age and number of mortgage rate. Interest expenses paid to providers of capital for home.
Henrico Virginia mls
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Wed Aug 11, 2010 12:45 pm |
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Mr.
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Interesting stuff.
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Fri Aug 13, 2010 6:53 am |
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Jammy
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| Sounds risky |
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I wouldn't recommend using life insurance for paying off mortgage. Isn't there any other option for you? This sounds risky to me.
payday loan
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Fri Sep 17, 2010 6:32 am |
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moonraker1
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Do not take speculative decision without considering all pros and cons. Better you search for other good option.
Payday Loan Cash Advance Loan Cash Loan Loan Companies
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Sat Sep 18, 2010 7:34 am |
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