Question: I am a 74-year-old widow. About six years ago, I added my daughter’s name to my home’s title in joint tenancy with right of survivorship so she wouldn’t have to worry about probate costs when I pass on. I’m doing pretty well, health-wise, but I am running low on income since my airline pension income was cut about two years ago. However, I am told I can’t qualify for a senior-citizen reverse mortgage because my daughter is on the title. Is this true? I asked her to quitclaim her interest back to me, but she is reluctant.

Answer: Since your daughter is obviously not yet 62, her being on the title to your home disqualifies you for a reverse mortgage. All co-owners must be at least 62 because reverse-mortgage eligibility is based on the age of the youngest owner.

Your situation is another example why I do not recommend adding heirs to real estate titles to avoid probate.

However, your problem has an easy solution, which is good for you and your daughter. You can create a revocable living trust with your daughter named as the successor trustee and the heir of your living-trust assets after you pass on.

Before you do this, be sure she agrees and signs a quitclaim deed to you. Then obtain your reverse mortgage. After it is recorded, you can then transfer title to your home into your new living trust, thus avoiding probate after you pass on.

The reason you should wait until after the reverse mortgage is recorded to transfer title into your new living trust is reverse mortgage lenders insist the title not be in a living trust when the reverse mortgage is originated.

In a ‘flex’ fix?

Q: I have read several articles about “flex mortgages,” and they are getting a bad name. I refinanced my home in January 2005 and have one of those loans, which expires in January 2008. No one told me about how bad negative amortization can be.

How concerned should I be? Should I refinance out of this bad loan? There is a prepayment penalty for doing so. I am planning on selling my home by the end of 2007.

A: I presume “flex mortgage” is another name for an “option mortgage” where you have the choice of making monthly payments of interest only, below-interest only, amortized payments, or partially amortized payments.

Any unpaid interest is added to your mortgage principal balance. The result can be “negative amortization” where you owe more than you borrowed.

At least six months before your too-short three-year loan comes due in January 2008, you should list your home for sale and hope it sells within a few months.

Since your mortgage has a prepayment penalty, and you plan to keep the home only another year or so, refinancing now to a fixed-rate mortgage would be a waste of money.

Found here.

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