Back Bay Condominiums

Q: I took a short-term job with a substantial increase in pay and would like to apply the extra money to my mortgage. Is it more beneficial to pay an extra amount each month or should I hold onto the cash and pay a large lump sum each year?

And if I make one lump sum payment annually, does it matter when I send in the payment?

A: Here's the short answer: When it comes to paying down any sort of debt, the sooner you make an extra payment to your loan, the less interest you'll pay over the life of your loan and the faster you'll pay it off. Let's take a look at how this works:

Let's assume you have $6,000 extra in cash each year to prepay your mortgage, and you have just closed on a 30-year, $200,000 fixed-rate mortgage at 6.5 percent. If you prepay your mortgage by $500 per month, you'll pay off your mortgage in 15 years, and pay $110,940 in interest. But if you make a $6,000 payment once a year, at the end of the year, it will take a few months longer to pay off the loan and you'll shell out an extra $5,000 in interest. If you make the payment in the middle of the year, you'll just about break even with the monthly prepayments. And if you pay the lump sum each year at the beginning of the year, you'll save a few thousand dollars extra.

Of course, if you have that much extra cash to prepay your mortgage and you are shopping for a new mortgage, you're best off getting a 15-year loan to start off with, because the interest rate you'll pay will generally be lower than you could get on a 30-year mortgage. But if you have a great rate now, and don't want to incur the costs of refinancing, then you should start adding an extra amount to your mortgage check each month. Just be sure you tick off the box that indicates the overage is to be put toward the remaining balance (the prepayment of the loan).

Q: I recently took out a home equity line of credit (HELOC) with a national mortgage bank. I was approved for a $25,000 line of credit but have a balance of only $3,750.

Now the HELOC is listed as a "2nd mortgage" on my home according to my homeowners insurance. That scares me, as I owe only $55,000 on my house.

Does the HELOC really have to be listed as "2nd mortgage" on my account?

A: Yes. A home equity line of credit (HELOC) is a loan that uses the property as collateral. The lender correctly took out a lien against the property, and is listed as the second mortgage holder, meaning that if you default against both of your loans, the primary mortgage lender gets first dibs on any equity. Once the primary mortgage lender is paid off, the second mortgage lender gets to dip into the equity generated by a sale to get paid.

I'm sure your loan specifies this. Please read your loan documents and be sure you understand them.

Q: I am married to a widower and his late wife's name is still on the house, as well as on a timeshare he owns. What are the steps in adding my name and deleting hers?

A: It may not matter that her name is on the properties. If your husband owned the properties jointly with his late wife, he should now be the sole owner of the properties even if her name is still on them. When she died, her share went to him or into her estate, which was presumably distributed to her husband and other heirs.

You can add your name to these properties using a quitclaim deed. Your husband would have to agree to do this, and since this is a property that he owned prior to your marriage, he may not want to do that. He may be thinking that this premarital property will be held separately and will pass down directly to his heirs.

Have you and he had a discussion about your assets and created an estate plan? If he wants to pass down the house to his kids, he has various options that he can use to allow you to stay in the home if he should predecease you. You and he can sit down with an estate planner to decide what option would suit you best. In some cases a living trust is sufficient and in others you can create a life estate.

These along with other options should be discussed with an estate planner or estate attorney.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.