help on buying a mortgage company

Help on Buying Mortgage Companies

Q: I’d like to buy a mortgage companyt. I have a monthly payment of $1,000 on my mortgage and about $130,000 in credit card and student loan debt. The student loans are still on deferment, but I’ll have to pay them back at some point. The monthly payment on the credit card is about $650. I’m just getting by. I’m never late on my payments, but I don’t have a lot left over.

A friend just told me about buying a mortgage company with a variable interest loan that gives me the ability to have a choice of four different payment amounts each month. I decide which payment I can make. If I make the full payment, great. Otherwise, buying mortgage companies instead of paying the whole mortgage payment, I put some of that money into an indexed universal life policy. That way I’m paying the principal and using some of the interest to actually save money for my retirement.

Have you heard of this? Is it legal? Is it a good idea? Any help would be greatly appreciated.

A: Has the world gone mad? I thought I’d seen it all until someone presented this concept to me a few months ago. What will mortgage and insurance salespeople think of next?

Here’s what I think: I think using an adjustable pick-a-payment mortgage plan in order to fund a life insurance policy is insane. Insurance products are supposed to make our lives more secure by giving us protections. But moving from a fixed-rate loan to an adjustable rate mortgage just to buy life insurance adds a great deal of risk to your life.

A big problem with the "option" mortgage is that paying your full interest and principal each month is just that - an option. You can pay your full interest, or you can take the money that was going toward your finance charges and go blow it on something else.

From my experience, most people do not have the financial discipline for an option mortgage. There are always competing needs that come up. I’ve seen countless situations where people had great intentions on applying extra cash to a mortgage payment each month, but opt for the minimum payment the majority of the time.

If you go for the option of buying mortgage companies and don’t pay enough interest, your loan balance will grow over time and your mortgage payments then could skyrocket. If you think you’re having trouble buying mortgage companies, imagine what your life would be like if your mortgage payments were increased by a great deal.

You’ve got some serious debt that you need to pay off. Get a plan in place to pay those bills off and forget about the exotic mortgage.

Q: A few weeks back you advised a recent retiree to transfer his 457 to an IRA to provide his heirs with tax-deferral advantages. If the retiree doesn’t have earned income (compensation as defined in IRS rules for IRAs), can he still establish that IRA and roll over the 457 assets into it?

A: You bet! Individuals do not need to have earned income in order to establish an IRA. They need earned income only if they want to contribute new dollars to that IRA. Money transferred, or rolled, from one plan to another does not add new money to the mix and can be done regardless of employment status.

Q: For several years I’ve owned stock in a company that was recently bought by another company. Instead of receiving stock in the new company, I received money. Because I didn’t want to sell the stock, am I still responsible for paying capital gains taxes? If so, it doesn’t seem right.

A: When you purchase stock in a company, you become a fractional owner of the company along with thousands of other shareholders who own stock in the corporation. The control you have is in direct proportion to the piece of the corporation you own. Unless you own a great deal of stock, the amount you control is minuscule.

You had the right to accept or reject any cash offer of buying mortgage companies made for your company, but if the majority of shareholders accepted the offer, you had no choice but to go along with their decision. You gave up control of your money when you purchased stock in the company. Unfortunately, you must report any gain you received from buying mortgage companies. But look on the bright side - at least you had a gain.