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Personal finance Q&A: Eliminating private mortgage insurance

Money Talk
Via @latimes: If you pay down your mortgage principal, do it the right way

Dear Liz: I bought my first home about a year ago. Because I had very little money for the down payment, I have to pay private mortgage insurance, which is a whopping $385 each month. My burning question about this is: How can I get rid of it? There must be a way to pay the loan quicker or pay more each month or something to make it go away.

Answer: Mortgage insurance protects the lender in case you default on your loan. Since loans with small down payments have a higher risk of default, mortgage insurance is typically required until your balance falls to 80% of the original value of your home. At that point, you can request in writing that the mortgage insurance be canceled. If you don't make the request, the lender is still typically required to terminate PMI when your balance reaches 78% of the home's original value.

To speed that day, you can pay down your principal, but do it the right way. Call your mortgage servicer and ask how to be sure the extra money you submit is reducing your mortgage balance. Otherwise, your extra money may just be applied to the next month's payment, which won't help reduce your balance much.

Paying a dead person's debts

Dear Liz: When I read the letter from the woman about her mother's debts, it brought back my situation with my brother and mom. My brother was trustee to my mother's living will and told her she had no money. At 90, she became worried and wanted to cut back on the care she needed. My brother had the same attitude as the woman who wrote you that her mother's property was not an asset for her to use but something to be hoarded for the heirs.

Answer: That's not the situation the daughter described. She was asking whether she and her sister were responsible for her mother's debts. They are not. The mother's estate would be responsible, and her estate would include her home. If the estate's assets aren't sufficient to pay all the bills, however, the creditors wouldn't be able to come after the daughters. Still, some collection agencies have been known to contact survivors, telling them they have a "moral obligation" to pay the dead person's debts.

Pension offsets vs. windfall eliminations

Dear Liz: You recently addressed the issue of the Windfall Elimination Provision, which reduces Social Security benefits for people who paid into Social Security but who also get a pension from an employer that does not pay into the system. My wife taught for nearly 40 years. Neither she nor her employer contributed to Social Security. As a result she falls under the WEP. This also, however, affects her spousal benefits under my Social Security record. So, because of the WEP, any spousal benefits she would be entitled to are essentially zeroed out since she receives a pension. If she had never worked (thereby not contributing to Social Security), she would be entitled to her entire spousal benefit. That doesn't seem reasonable to me.

Answer: What you're referring to is a different provision, the Government Pension Offset. People who receive a pension from a federal, state or local government job that didn't pay into Social Security can have their Social Security spousal or survivor benefit wiped out by the GPO. By contrast, the Windfall Elimination Provision typically leaves at least half of the worker's Social Security benefit intact.

The rationale for the GPO goes like this: Spousal and survivor benefits are considered dependent's benefits. The law has always required that these benefits be offset dollar for dollar by the amount of the person's own retirement benefit. So if your wife had earned a $1,000 monthly Social Security benefit based on her own work record but a $500 spousal benefit based on yours, she would not receive both. Her own benefit would completely offset the spousal benefit.

Before the GPO, though, your wife could have received a $1,000 monthly pension from a job that didn't pay into Social Security plus a spousal or survivor's benefit from Social Security, leaving her much better off than someone who had paid into the system.

Questions may be sent to Liz Weston, 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the "Contact" form at asklizweston.com. Distributed by No More Red Inc.

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