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Ask our broker Mortgage Fundamentals:

QandA WITH PETER G. MILLER

I Want Out. Will the Bank Let
Me Off the Hook if I Simply
Turn in the Keys?
Q: Say an investor buys five sin-
gle-family homes and then has all
sorts of problems with tenants,
repairs and code violations. The
investor attempts to sell the prop-
Tally Costs, Not Just Benefits, of 40-Year Loans
BY CHARLES SCUTT
Content That Works
For a long time, it seemed
that fixed-rate home mortgage
loans came in only a handful of
flavors: 15 years, 20 years and, at
the top limit, 30 years. But
recently, lenders have introduced
a new item to their menu: the 40-
year mortgage loan.And many
borrowers are gobbling it up.
The immediate advantage of a
fixed-rate, 40-year mortgage is a
lower monthly payment.
Consider a home buyer looking
to borrow $200,000 at 6 percent
interest over 40 years. His or her
monthly payment would be
about $1,100.That compares to
roughly $1,199 per month with a
30-year fixed loan at the same
interest rate.
The additional time on a 40-
year mortgage allows borrowers
to think a bit bigger.“People are
living longer, so some borrowers
might be able to rationalize an
additional 10 years of mortgage
payments,” says Alex Giassa, mort-
gage consultant with First
Interstate Financial Corp. in
Paramus, N.J.“The lower monthly
payment can help enable bor-
rowers to qualify for a higher
loan amount and afford the
home they want,” especially if it’s
a more expensive house.
Many experts say that 40-year
loans are becoming more popu-
lar as buyers face higher home
prices and are enticed by the
prospect of stretching out the
See MORTGAGES, Page 2

Image courtesy of KraftMaid

erties and nobody will buy. Even
the “we buy houses” people won’t
touch them. The investor is willing to sell just for
the balance on the mortgages, losing thousands
more than he already lost. The investor is tapped
out financially and doesn’t have the money to
make improvements. What are the ramifications
if the investor just takes the deed and the keys to
the lender and gives them back? Does this rid
him of the problem? The investor has a secure
full time job and makes good money, owns his
own home, is married and has great credit, but
just wants to get himself out of this mess.

A: Giving back the keys and deeds will not solve this
problem.You – for simplicity’s sake I shall assume the
investor involved here is you – owe a given amount of
money.Two things secure the debt: the properties and
you. If you do not make required payments, the lender
will foreclose and the properties will be sold.This
process is likely to result in low-ball bids, if any, and
will not generate enough money to pay off the loans.
Meanwhile, the lender will look at its other form of
security: you, the person with the good income and
nice house. If there is a way to do it, you can bet that
the lender will sue to cover the loans and the costs of
foreclosure.
Given that you are likely to lose substantial money in Kitchen cautious: refrigerators and freezers account for 17 percent of the $1,500 annual home energy costs, according to the U.S. Department of Energy. Installing
all circumstances, the question is this: How do you appliances designated ‘Energy Star’ can save up to $450 per year.
limit your losses? First, do not give back the keys or
anything else to the lender. Instead, have an attorney
contact them and see if the matter can be negotiated.
Second, to preserve your credit it may be better to sell
the properties for less than the mortgage amounts
Curb Energy Costs by Reading Fine Print
rather than go through a foreclosure.You may have to BY PATRICIA V. RIVERA an appliance costs to operate,” says the “As energy prices continue to rise, more
make up the difference by refinancing your home or Content That Works Seaford, Del. homeowner.That’s why he people are paying attention to the labels,”
otherwise working out a repayment plan with the bought a 5,000 BTU Goldstar unit identified says Steve Nadel, executive director of the

lender.
Q: I’m planning to buy a house and would like
to know if there’s a landfill within a mile of the
property. Where can I get this information?
A: The seller’s broker, your buyer broker and the
See ASK OUR BROKER, Page 2
M
ike Ingram carefully bargain shops for
most of his purchases.When it comes
to home appliances, however, he
looks beyond the price tag.
Take the air conditioning unit he just pur-
chased. Before putting down his money he
closely read the larger tag on the unit – the
one that spelled out how much he would
really spend on the unit over its expected life
span.
“Just as important as the cost is how much
as compliant with the Energy Star initiative, a
program introduced by the U.S.
Environmental Protection Agency in 1992
that identifies and promotes energy-efficient
products.
The typical household spends $1,500 a
year on energy bills, according to the U.S.
Department of Energy. Homeowners can
reduce their energy bills by at least 30 per-
cent – more than $450 per year – by using
high-efficiency appliances.
Washington, D.C.-based American Council for
an Energy-Efficient Economy.
The U.S. Environmental Protection Agency
reported earlier this year that public aware-
ness of Energy Star has jumped to 64 per-
cent. In many major markets where local
utilities and other organizations use Energy
Star to promote energy efficiency to their
customers, public awareness of Energy Star is
See ENERGY, Page 2

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 ENERGY
CONTINUED FROM PAGE 1
even higher, averaging 74 per-
cent.
The program allows manufac-
turers whose appliances exceed
federal minimum efficiency stan-
dards by 15 percent to 20 per-
cent, or a specified consumption
level to use the Energy Star des-
ignation.
Homeowners may have to pay
more for a high-efficiency appli-
ance. But reduced energy bills
over the long haul can make
such a purchase a better invest-
ment than purchasing a cheaper,
less efficient model.
Even if you don’t opt for an
Energy Star-labeled appliance,
study the Energy Guide label to
compare similar models for esti-
mated energy consumption and
estimated yearly operating cost
based on the national average
cost of electricity.
Everyday appliances account
for more than one-third of a
household’s total energy con-
sumption.
Some states and utilities offer
rebates with the purchase of an
Energy Star appliance.The
rebates are most common for
refrigerators, air conditioning
equipment and clothes washers.
The American Council for an
Energy-Efficient Economy offers
information on its Web site about
rebate programs throughout the
country
(www.aceee.org/new/eedb.htm).
Studies have shown that
refrigerators consume the most
electricity (14 percent of total
MORTGAGES
CONTINUED FROM PAGE 1
benefits of tax-deductible inter-
est over a longer loan period.
However, too few buyers
focus on the bottom-line reality
that longer term loans equal
greater expense, says Gibran
Nicholas of Nicholas & Co.
Mortgage Planners,Ann Arbor,
Mich. Nicholas believes 40-year
mortgages are currently hot, at
least in part,“due to borrowers
not being counseled properly on
their mortgage and home buying
decisions.”
As tempting as it might be to a
homebuyer on a budget, a 40-
year mortgage carries some bur-
dens along with the longer pay-
out term.
The loans typically have a
higher interest rate,“Usually from
one-eighth to one-half a point
higher than the interest rate for a
30-year loan,” says Giassa.
The total interest a borrower
pays the bank over the course of
time will be much higher than a
30-year mortgage, points out
electricity use for all purposes),
followed by lighting (9 percent),
clothes dryers (6 percent), freez-
ers (3 percent) and color TVs (3
percent).
ENERGY-WISE TIPS
Whether you purchase an
Energy-Star labeled appliance,
these tips can help you reduce
the energy your home appli-
ances use, and save money.
REFRIGERATOR/FREEZER
• Position your refrigerator
away from heat sources such as
ovens, dishwashers or direct sun-
light from a window.
• Allow air to circulate
around the condenser coils of a
refrigerator or freezer by leaving
a space between the wall or cab-
inets.
• Make sure the door seals
are airtight.
• Keep your refrigerator
between 35 F and 38 F and your
freezer at 0 F.
• Minimize the amount of
time the refrigerator door is
open.
• Cover liquids and wrap
foods stored in the refrigerator.
Uncovered foods release mois-
ture and make the compressor
work harder.
• Look for a refrigerator with
automatic moisture control,
which prevents moisture accu-
mulation on the cabinet exterior
without the addition of a heater.
WASHER/DRYER
Energy Star does not label
clothes dryers because most use
similar amounts of energy
• Wash your clothes in cold
Andrew Housser, co-CEO of
Freedom Financial Network, San
Mateo, Calif.
Changing the original exam-
ple to reflect a slightly higher
interest rate (6.25 percent) for
the typical 40-year mortgage, the
total interest payments are
approximately $345,000 – nearly
50 percent higher than the total
interest payments for a 30-year
mortgage at 6 percent interest,
says Housser.
What’s more,“the homeowner
builds equity much more slowly
with a 40-year loan than a 30-
year loan,” Housser says. In the
last example, $199 goes toward
paying down the principal in the
first month of a 30-year loan,
compared to less than $94 for a
40-year loan.
“So for a slightly lower pay-
ment, you are giving up a lot in
the form of high interest pay-
ments to the bank,” says Housser.
Despite its drawbacks, a 40-
year fixed-rate mortgage loan can
be beneficial to borrowers who
fit the right criterion.
“These loans may be good for
first-time homebuyers who plan
to live in the dwelling for more
water using cold-water deter-
gents whenever possible.
• Wash full loads: Clothes
washers are most efficient when
operated with full loads.
• Dry towels and heavier cot-
tons in a separate load from
lighter-weight clothes.
• Clean the lint filter in the
dryer after every load to improve
air circulation.
• Use the moisture sensor
option on your dryer, which
automatically shuts off the
machine when the clothes are
dry.
• If your clothes washer has
spin options, choose a high spin
speed or extended spin option
to reduce the amount of remain-
ing moisture, thus starting the
drying process before you put
your clothes in the dryer.
• Air dry clothes whenever
possible.
LIGHTING
• Select compact fluorescent
(CFL) bulbs, which are four
times more energy efficient than
incandescent bulbs and provide
the same lighting.
• Take advantage of daylight
by using light-colored, loose-
weave curtains on your windows
to allow light to penetrate the
room while preserving privacy.
Also, decorate with lighter colors
that reflect daylight.
• Use outdoor lights with a
photocell unit or a timer so they
will turn off during the day.
©Content That Works
than 10 years, or those who
intend to use the home as a
future investment property,”
Giassa says.“But people who are
diligent savers, and especially
those who plan to live in the
house only for the short term,
should avoid these types of
loans.”
Housser says that a 40-year
loan may be a good decision,“if
you know your income is
improving, if you want to get into
a house you can’t otherwise
afford or if you’re planning on
refinancing in a few years when
you can afford the lower pay-
ment with a 30-year loan.
However, home buyers must
keep in mind the risk that inter-
est rates may rise significantly by
the time they are ready to refi-
nance, which could cause pay-
ments to jump substantially.”
Ultimately, Housser and many
other experts feel that most peo-
ple should steer clear of 40-year
mortgage loans.
“Like adjustable-rate mort-
gages, they are part of the
American trends of immediate
gratification and living beyond
one’s means,” says Housser.
Ask our broker
CONTINUED FROM PAGE 1
local planning office should all be able to provide this
information. In addition to researching landfills, ask
about zoning near the property; that will help you
understand how local land can be used.Also, ask if
there are localized disclosures, such as a “right to farm”
notice sometimes found in outlying metro areas.
One disclosure I recently encountered said buyers
should be aware of “inconveniences or discomfort aris-
ing from such operations including, but not limited to,
noise, odors, fumes, dust, flies, the operation of machin-
ery of any kind during any 24-hour period (including
aircraft), vibration, the storage and disposal of manure
and the application by spraying or otherwise of chemi-
cal fertilizers, soil amendments and pesticides.” Buyer,
beware.
Q: What recourse does a buyer have if they
moved into a house infested with bats, something
the seller’s disclosure statement did not reveal?
The home of our dreams has become the home
of nightmares. Is there anything we can do to get
our money back?
A: This may be a smaller problem than you think.
Bats help with the balance of nature because they con-
sume huge quantities of insects. Because some species
are endangered, there’s a need to use care with such
creatures.
However, like other animals, bats can be sick or rabid,
reason enough to have concerns. Have a licensed pest
controller relocate the bats and then, if possible, screen
the openings the bats used to enter the home.
As for getting your money back from the sellers,
assuming that we’re talking about a few bats and not
90,000 lurking in the attic, there are several issues:
The sellers may not have known about the bats, since
they are quiet, nocturnal creatures and the attic is a
space most homeowners visit infrequently.The owners
may have hired pest controllers to treat the property
and assumed the problem was resolved. It’s also possi-
ble that the owners may not regard bats as harmful or
frightening; in their view there might have been noth-
ing worthy of disclosure.
You could seek damages from the sellers to cover
your costs for pest control. However, if the sellers are
not nearby it may be difficult to collect from them.
Check your options, but in practice it may be best to
just call a professional bat remover and be done with it.
© Content That Works
Do you have a question or a quandary about buying, sell-
ing or renting? Peter G. Miller, author of The Common-Sense
Mortgage, specializes in providing real solutions to real estate
dilemmas. E-mail your questions to
peter@contentthatworks.com.
“Buying a more expensive house
than you can afford is a result of
short-term focus on consump-
tion rather than a long-term
focus on financial stability.”
In the end,“these types of
loans are ideal only for people
who have a tremendous fear of
rates increasing in the future and
who seriously anticipate their
personal and financial situation
remaining static for an entire 40-
year timeframe,” says Nicholas.
© Content That Works