Ask Our Broker
Our parents died without a will. How can the siblings best divide the property?

Q: Our parents died without a will. They owned a home that was mortgage-free. Within our family, one sibling wants to buy out the other four and keep the home. How can we best divide the property?

A: There is nothing to divide - yet. Your parents died intestate - that is, without a will. That means their estate must be probated under the rules of their state, and probate may result in lots of fees and costs, as well as a division of property that will not please you or your siblings. You will need to contact an attorney in the jurisdiction where the property is located to determine the next steps.

The agitation you now face could have been avoided had your parents had a will and a living will. These are not pleasant matters to discuss, but the harsh reality is that such documents are necessary in our society. You and your siblings, as an example, should have such paperwork.

Q: What's an initial payment cap?

A: Typically with an adjustable-rate mortgage, there's a periodic payment cap (perhaps 2 percent) that limits how much the interest rate can rise with each adjustment.

There's also a lifetime cap (perhaps 6 percent above the start rate), which represents the highest possible rate for the loan.

An initial payment cap is something relatively recent. It says that when the loan first adjusts at the end of the start period, the reset rate can be increased up to the limit set by the initial payment cap.

How much? Sometimes as much as 5 or 6 percentage points. For instance, if you have an ARM with a 5-percent start rate, a 2-percent periodic cap, a 6-percent lifetime cap and a 5-percent initial cap, then at the first adjustment the rate could go from 5 percent (the start rate) up to as much as 10 percent in the worst case (5 percent for the start rate plus 5 percent allowed under the initial cap).

Is this likely to happen? Hopefully not. However, it should be a matter of concern that one-time increases of 5 percent and 6 percent are even allowed.

As an example, Thompson has a 3/27 ARM. He has borrowed $150,000. The rate is fixed for the first three years at 6 percent and then adjusts. The loan has a 5-percent initial interest cap, a 2-percent periodic rate and a 6-percent lifetime cap.

Imagine that after three years rates are up 3 percent - well below the initial rate cap but higher than the periodic cap. Here's what would happen:

• For the first three years the payment for principal and interest would be $899 a month.

• At the end of three years the rate would rise to 9 percent - the 6-percent start rate plus 3 percent.

• At the end of three years the loan balance would be $144,126 because of amortization.

• The term of the loan would be reduced from 30 years to 27 years, meaning there's less time to pay off the remaining debt.

• The new monthly payment would be $1,186 - an increase of $287 (31 percent).

Had there been no initial rate cap, had the limit simply been the periodic rate cap, then the maximum rate increase would have been 2 percent and the new loan payment would have topped out at $1,087.

The new and higher cost in our example works out to $3,444 a year. ($287 x 12). For many households, that's a significant amount, even if some portion is tax-deductible. It may mean cutting back on other expenses, saving less, giving up vacations, etc.

The bottom line: If you're interested in ARM financing, have loan officers review all caps and have them work out worst-case scenarios. Of course, rates may not go up or go up much, but if they do increase, you are the one who will be paying the bill.

Q: We want to find a local buyer broker. Should we consider brokers who also hold open houses and represent sellers?

A: Within real estate, there are brokers and salespeople who represent sellers, buyers and sometimes both. There also are exclusive buyer brokers who only represent purchasers.

I'm concerned about the issue of representation, but I also am concerned about experience and skill. The last buyer broker I used had participated in more than 500 transactions, was wellrecommended and nonexclusive. To me, localized experience and professionalism were my top concerns. For your needs, speak with various local brokers and find the experienced individual with whom you feel most comfortable.

© CTW Features

Need real estate advice? Peter G. Miller, author of "The Common Sense Mortgage," would love to hear from you. Send your questions to peter@ctwfeatures.com. Due to the volume received, not all letters may be answered.