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Portable mortgage carries too many "ifs'

Question: My wife and I are under contract to buy a new house, which should be finished in a month or two. Recently we heard about a portable mortgage that, if we decide to sell our home, can be transferred at today's low interest rates to another home. But when I inquired, I learned this mortgage has a higher interest rate than our current mortgage commitment. What do you think about a portable mortgage?

Answer: I HAVE received several phone calls from news organizations about this new mortgage, which is being offered by E+Trade Mortgage (www.etrade.com, click on lending). I am very skeptical.

The idea was tried before by another major nationwide lender, and it flopped. Too many unanswered questions are involved.

If the mortgage is truly transferable from one home to another without change in its current interest rate, that's great. But few borrowers move from one home to another of equal cost. It is usually a move up or a move down. That means the existing mortgage balance will be either too low or too high. E+Trade will offer a second loan to make up any difference on the costlier home at the prevailing rates for first mortgages. The mortgage can be transferred only once.

The borrower must re-qualify to transfer the mortgage. What if the borrower is retired but wants to transfer the existing low interest rate mortgage? Too bad. The borrower has insufficient income.

The portable mortgages will be discontinued when interest rates have moved up enough to negate their advantage.

I hope the lender does well. However, I have no great expectations for this kind of mortgage.

Choosing mortgage length

Question: My wife and I want to refinance our 6.75 percent interest rate mortgage. We are comparing 30-year and 15-year mortgages. The 15-year mortgage is at about a one-half percentage point lower interest rate than the 30-year mortgage. However, my employment situation isn't too secure. I am a junior pilot with a major airline that has already cut my pay and might go broke. A mortgage broker friend says we can qualify for either mortgage. If you were in my situation, would you take a 30-year or 15-year mortgage?

Answer: If I were in your situation, I would refinance with a 30-year mortgage but pretend it is a 15-year mortgage. That means make monthly payments at the rate of a 15-year amortization schedule. If your airline goes broke, you can drop back to the lower monthly payments of the 30-year mortgage. In your situation, obtaining a 15-year mortgage isn't worth the risk just to enjoy the minimal savings of one-half a percentage point on the interest rate.

Dissatisfied with appraisal

Question: About 25 years ago, we bought our house in a transitional neighborhood, which has become very trendy and highly desirable. We recently had our home appraised for a refinance. But the appraisal came in very low. When I investigated, I learned the appraiser used comps (recent comparable home sales prices) not even in my neighborhood, but about a half-mile away. I told the lender and the appraiser that I paid for a bona-fide appraisal and that's what I want. Either re-do the appraisal, using truly comparable recent nearby home sales prices, or I'm not paying for the appraisal. How can I complain about a bad appraisal?

Answer: Congratulations on complaining about that bad appraiser. If the facts are as you report, that appraiser should not be eligible to hold an appraiser's license. Insist that appraiser re-do the appraisal until he gets it right. If the lender required you to pay for the appraisal, you are entitled to an honest appraisal that uses current appraisal standards. That means the appraiser must use truly comparable recent home sales prices from your neighborhood, not one that is a half-mile away.

Of course, if there were no home sales in your vicinity within the last six months, the appraiser must use the best available comps, which could be in an adjacent neighborhood. If the appraiser refuses to re-do the appraisal, report his negligent appraisal to the state office of real estate license appraisers for discipline.

Leverage over seller lost

Question: I bought the building in which my business is located. My inspector found several defects, such as the bad furnace, leaky gutters and electrical problems. The sale has closed. The former owner now says he fixed the defects and has no further liability to me. Am I on firm legal ground to continue to demand the seller repair the building to reasonable standards?

Answer: No. When buying commercial property, the general rule is "caveat emptor" (let the buyer beware). If you closed the sale without making certain the building conformed to the terms of the sales contract, you now have no legal recourse. You are on extremely shaky legal ground. Before the sale closed, you had leverage over the seller. After the deed to you was recorded, you lost your clout.

Send e-mail to Robert J. Bruss at bobbrussaol.com or write to him at 251 Park Road, Burlingame, CA 94010.

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