On homes and real estate: Why refinance to adjustable-rate mortgage

Q. I have more than 20 percent equity in my home. I would like to refinance to a 5/1 adjustable-rate mortgage. Will I have a better chance with my existing lender?

A. By all means, the best place to start is with your own lender. If you have a good payment record, it could help.

I wonder, though, why you’re looking for an adjustable-rate mortgage. Perhaps, you anticipate moving within the next five years? Otherwise, it would seem prudent to lock in the current low interest with a fixed-rate loan. That’s what most borrowers are doing these days.

Q. Once a real estate contract is over, can I buy directly from the owners, without them having to pay a commission to the broker? I want to buy my friend’s house, but only if the real estate commission is not included. The contract ends this month.

A. I haven’t seen the listing contract that your friend signed with the brokerage company. It probably says a commission will be due if the place is later sold to someone who’s already seen it while listed. That usually applies for a specific number of months after the listing expires.

The answer to your question lies in that contract.

Q. I’m writing about your advice to people that most banks will allow new owners to assume the previous owners’ mortgage or remove a name from a mortgage when there is a divorce. We had a VA loan. My ex-husband was the veteran.

When we divorced, the bank offered two options: a release of liability, which would remove his name from the mortgage, or refinance. The release of liability required much more than just canceled checks. I would have had to essentially apply all over again at a cost of roughly $750. I chose to refinance through another bank because mortgage rates were at an all-time low.

A. That’s not quite what I wrote about mortgage assumption after divorce. Your husband had that offer — release of liability — because his was a Veterans Affairs loan. Only VA and FHA mortgages must include that possibility. For other types, known as conventional mortgages, it’s usually up to the lender whether or not there’s a procedure for dropping a name from the mortgage.

In normal times, if the interest rate on the existing loan is lower or the same as for current mortgages, the relatively low cost makes releasing liability an attractive option. Of course, it’s understandable that you preferred to pay higher closing costs and instead went for a new loan at today’s rates.

Q. I would like to buy a house for my parents (their credit prevents them from doing so). I was told a FHA mortgage is the way to go, as I do not have a lot of money for a down payment. I am not sure about the consequences of putting my name on a mortgage. I currently live in a different state.

How would this affect the fact that I would not be living in the house and would have my parents sign a lease? And how would this affect my ability to get a mortgage later on with my fiancee?

A. Owning a rental house should not hurt your ability to get a loan later for your own residence. You would receive credit for your net rental income as part of your financial qualification.

But an FHA-insured low-down-payment mortgage is meant for a house you intend to live in. When you buy a place to rent out, down payment requirements are much higher. So, I don’t think that would work.

Q. What might be the drawback if I were to get into a rent-to-own program and later decide to opt out? Could I sell, even if my home is not fully paid off? Will I lose a lot of money?

A. Every rent-to-own contract is different, depending on the needs of the parties. If you think you may later want to move out, you need to make sure that your contract gave you something you could sell, so you could allow someone else to step into the contract where you left off. Your seller/owner would want the right to approve or disapprove of any potential substitute, based on their credit record or whatever.

It might be difficult to find such a next buyer. At any rate, the situation would be fairly complicated. You certainly want the input of your own real estate lawyer before you sign anything. You should do that with any rent-to-own agreement.

Ÿ Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may email her at www.askedith.com.

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