Cathie,

WHY would you want to do this? You need to put up your cash to buy a certificate (CD) and then they promise to lend it back to you (up to 100% of the CD value) at an interest cost 2% above what they are charging you.

As they explain, its a great way to establish your credit if you have none (at a cost of a net 2%... a pretty decent deal, actually,) however if you have the credit, and the cash, you'd be paying out good interest costs for no reason.

Dave Donhoff
Leverage Planner

Since I belonged to one of the less than good credit union's one thing to check on for anyone thinking about using this type of loan is will your entire share account be frozen or just the amount that the loan is on. Several of my fellow employees found out that ours froze every thing in the share account.

maifleur - Good point about the frozen share account. Although, I assumed mine would be frozen until it was paid off in full (IF..I did something like this). Am I missing something?

dave_donhoff - I'm just brainstorming again! LOL

We have a house with a 2nd mortgage. We bot in 2003, and the 2nd is at 8%. Orig (for 2nd) was about $26,800. 30yrs due in 15. Have paid on this for 7 yrs as of Sept 2010.

We've been making pymts of about $240.00/mo, + we made 2 or 3 extra annual pymts. (Min Due = approx $196.00) So it should be paid off at the 15 yr mark. We owe just about (or 'just over') $10k.
Will take another 8 yrs to pay off 2nd.
I don't want to wait 8 more years.

We cannot re-fi. Bought for $134,000 in Southern California, and NO equity (obviously). We owe about $108k btwn 1st & 2nd.

Zillow shows valued at $105K this month, but has been down to $90K AND I KNOW that Zillow, Trulia, Cyberhomes are just guestimates. However, we have nothing fancy, and bought with none of those updates or remodeling. (we have green & blue sinks, toilets, tubs; tiled counters & orig cabinetry in kitchen & bathroons. Basically the same as was built in the '70's.)

My mind is all over the place & I've been wondering about this for awhile now. Some days I say "NO WAY", other days I wonder.
I want that 2nd paid off. Yet, I want to keep what little liquid assets I have.
(AND, I DO understand that my 'Liquid Assets' would be tied up if I were to consider this type of loan until paid in full.)

I am also getting close to receiving an inheritance by years' end. LOL, I know, don't count your chickens...
Well, I'm gonna say I'll be LUCKY if I get 5k! Most likely more, but...one never knows. (I'm thinking about at least 10k, so settling for 5).

HOWEVER, all this came about regardless of the stupid inheritance!

I was just thinking / pondering.

The rate of the 2nd on our home is 8%.
We cannot re-fi. (negative equity, PLUS it 'costs' to re-fi)
Balance due approx 10k (maybe a bit more, but not a problem)
Dividend Rates on C.D.'s so low it's crazy - nothing to spit at nor blink twice about.

I was just wondering: Open a 'share cert' for 10k for 60 months, borrow 100% against it, (still get the dividend paid on my cert???), pay the 10k 2nd mortgage off with the loan, and pay myself back???????
(and, if I default, I still have enough to cover...B-4 any inheritance)

Does ANY of this make any sense? I'm tired.

HOWEVER, I ALSO WAS WONDERING ABOUNT ANY NEGITIVES TO TAKING OUT SUCH SECURED LOAN...when I have a very long history of good credit.

âÂÂThanksgiving is an emotional holiday. People travel thousands of miles to be with people they only see once a year. And then discover once a year is way too often.â ~ Johnny Carson ~

Hi Cathie,

You're making this *wayyyy* too complicated (which is what people more usually accuse of me!)

You have $10,000 outstanding on a loan at 8%.
You may be getting $5-10k in inheritance soon.

You are considering;
Taking that inheritance, buyin a CD paying 1%, in order to borrow at 3%...
In order to then take the borrowed money (costing a net additional 2%, on money that WAS in your hands at 0% costs,) to pay off balance costing 8%.

This is 2% more expensive to you than simply taking the inheritance money and paying it toward the 2nd loan balance directly.

You won't get any more liquidity or safety from either strategy,
You'll simply pay less by doing it directly.

NOW... HAVING SAID ALL OF THIS... My Advice is;
Before paying more into your loan balances, make sure you have a full year's worth of your total all-around costs of living saved in a safe reserves account. Conservative is 12 months worth in cash. Aggressive is 6 months' worth in cash, plus 6 months' worth in unused no-annual-fee revolving unsecured credit (credit cards, lines of credit, etc.)

Don't throw away your safety & security in pursuit of interest savings... you can pursue the savings after you have a responsible safety net undeneath you.

Luck!
Dave Donhoff
Leverage Planner

"...You're making this *wayyyy* too complicated..."

haha, This is what I do best! I always over-complicate things.
I wasn't necessarily going to use the 'inheritance'. I won't depend on that until I have the money in my posession.

Regardless, I woke up this morning with the "NO WAY" attitude again.

I've decided I'm just going to go buy $10k of lottery tickets instead. (GASP!)

Yes, I'm stuck in the middle. I REALLY want to sock away as much $$$ as I can. But I want that 2nd paid off too.
Who said I can't have it both ways?

On a serious note, 1/7th of my portion of the inheritance goes to my Mother off the top. All of us siblings agreed to give her 1/7th each a couple years ago because she wasn't included in the payout, & we all agreed that was the right thing to do. (and I HOPE the others ALL are true to their word - one I'm not too certain of...)

The rest will be split amoungst the Credit Unions and going into C.D.'s for probably 12 months, unless one (or more) of the Credit Unions has a "special" or "promo".

I'll probably ladder them (well, at least stagger them so they don't all mature at the same time.)

Once I get money into a C.D., it's psychologically difficult for me to cash them out at maturity. I just review at maturity and either roll over or place into a 'special' if any are available.

I have time to ponder some more.

Maybe I'll just pay $60.00/month more to the second & then review in 6 months.
Maybe I won't! LOL

Thanks Dave for your input, and yes, my own money would not be availible to me if tied up in a secured loan.

Maybe, I'll get a secured loan on my furniture. (It's trashed, and I can afford to loose it - & have it hauled away for free! Yeah, sounds good! j/k)

A small thought on giving your mother the money. Naturally you did not state how much but if it is more than $9,999.99 only give her an amount lower than the gift tax cutoff. You can talk to your family about adjusting the amount so that each will give less than the max just to be fair. She should have some money to spend as she sees fit but the group with her agreement could set up an account with the money that automatically will pay her bills.

Of course review her financial status before giving money. In some cases extra money can present problems with living arrangements. Such as if in senior housing or receiving a utility subsidy. In that case gifts that she can use is better than any money. I am not suggesting working the system but have seen someone that received an inheritance have to move from a senior housing unit where they had lived a long time to substandard housing a review could be necessary. This is advice to everyone not just you.

Back to your question. Most CU's you have to purchase a share of the CU. This share is normally held in what is called a share account, in mine is also titled savings account. You can have other accounts and cd's but they are not considered the share account. Not wise in my mind but you can buy a cd and use it as collateral separate from the share account.

Stop worrying about paying anything off. As the economy is currently, it would be better to put as much as you can in savings and forget about paying extra on the mortgages. Like a lot of people you are probably using your interest as a deductible on your taxes. If you eliminate the interest you eliminate the deduction. If you save your money you have it. If you pay on the mortgages and something happens, fire, flood, loss of jobs, etc you will not have the money to live on and pay the base amounts until things return to normal.

When you use something such as your car or furniture and it must be sold because of something happening you can still be liable for difference between the loan and what the lender receives for the stuff. A nice safe nest egg is better than having no bills.

Play with scenario's which I do as a what if game but unless the economy is booming use them only as a diversion not a real life strategy.

maifleur,

Thank you for this information.

1) Mom is living in her home. She plans to stay there "until they drag her out by her feet" she says.
She is in her mid 80's. I also have a brother & his son that live there with her. (He's broke also) She receives S.S., but does not receive SSI. Nor does she receive 'food stamps'.

She DOES get the UTILITIES Discount though ('CARE Program').

I recently found out that she has the 'reverse mortgage' on her house, so gets a bit extra each month from that. (I don't know how long ago she did the reverse mortgage)

2) My house partner was using the interest as deductible on taxes when he was working. He has retired, S.S. only, so interest as deductible does not apply.

I am also on S.S.D.I. (Disability) - Interest deductible does not apply. (IRS actually sent me a note to NOT file tax returns, as I was still filing every year anyway! LOL, guess I was wasting their time.)

Neither of us benefit from the interest deduction.

Don't worry, the loan against furniture was a joke. I would never put my car up for a loan either.

3) Credit Unions: I have at least the minimum in the 'savings' of all three. I have C.D.s in all three. Checking accounts in 2 of them, and a Money Market checking in one of those 2 - (Used primarily for house payments)
One of the checking I use for general household as utilities, maint. costs, etc. The other I use for my own personal stuff.)

4) The 'gift' to Mom. I want to address this in another post.

Was hoping to get back to this. Talking about C.D.s, I got side-tracked and spent a few hours on phone to all CU's and "doing the math". (Don't worry, I didn't do anything stupid)

Want to get back to that issue about "gift" to Mom, but may have to wait - will be gone all day tomorrow, & I have several things to do before then.

I'm back. This thing about a 'gift' to Mom. I'm clueless.
I expressed my concerns about any 'Tax' consequences upon receiving any inheritance. That was a couple years ago, & the amount could have been potentially greater for all, if not for this housing market. (basically, the only asset was rental property - 3 units on one lot) which was held in joint with another person. The property, of course sold for a lot less than it could have a couple years ago.

ANYWAY...Now I have questions.

1) Do inheritances have any tax consequences, IF paid out this year (obviously under $20k)?

2) More important. This "GIFT" to Mom, What are the consequences to HER on this? Where can I find info online (that I can comprehend?)
This would be considered a 'GIFT' for tax purposes? Or, what?
I certainly don't want HER to have to pay extra for taxes. (Maybe I'll just keep the $$$! not...)

I know that at least 2 or 3 of us siblings could spread this out, create a seperate account, or something. I'm pretty positive at least 2 won't care & just want to be done with it. The 3rd, anybody's guess.

The 'MAYBE' GOOD thing, payout MIGHT be b-4 years' end. Which means some could give $$ this year, and some next year? (only a couple / few short months apart?)

I'm so ignorant about all this. (& a lot of other things, too.)

(BTW - My sibling who is the Administrator of all this is NOT keeping us informed on much of anything. I look up the filed Docs online to get most of my info.)

I REALLY don't want to put Mom into a position that is depressing to her.

ONE MORE THING: It was initially going to be kept 'secret' that we were going to share with her...a 'surprise'. I haven't told her anything, but I don't know if anyone else has said anything to her.
This mutual verbal 'agreement' was made a couple years' ago, and I haven't checked the pulse of anyone recently - (to find out if they "remember". I'm holding to my word is all I know)

What kinds of questions should I ask Mom? (as decretely as possible?)

Thanks in advance...

You should check with your state taxation/department of revenue about both inheritance and estate taxes as some follow federal some use a different system.

I would be more worried about your Mom's Care Program. We do not have that program here but being on the border of two states with several utilities based on what most of them could do depending is cut off the program if she has more than a certain amount of money. Some will make the participant pay back what has been supposed along with the cut off. You need to check on the plan yourself rather than your mother to see what her utility company does.

Good luck. Perhaps others that have a similar plan will comment.