DEAR BOB: We are “cash challenged” home buyers. As you often suggest, we are trying to get pre-approved for a mortgage before we start seriously shopping for a home. A mortgage company we consulted suggests we get an “interest-only” mortgage because our monthly payments will be rock bottom so we can qualify for a larger mortgage. That’s good. But it is an adjustable-rate mortgage. That’s bad. Also, it has a 10-year term. By then, my husband expects to be promoted and transferred to his company’s main office. What do you think of interest-only mortgages? – Ruth Ann G.
DEAR RUTH ANN: I like fixed-rate, interest-only mortgages. They are good for both borrowers and lenders because monthly payments are as low as possible. But most lenders prefer to instead originate adjustable-rate, interest-only mortgages.
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However, if your adjustable-rate, interest-only mortgage has an annual maximum interest rate increase, such as 1 percent, and because you expect to keep your home less than 10 years, an interest-only mortgage might be your best bet.
The fact your mortgage won’t have any principal reduction is not important because during the first 10 years there is very little pay down on amortized mortgages.
I notice your letter is postmarked from an area with rapid home market value appreciation. If appreciation continues at the current rate, you should have a handsome equity profit by the time you are ready to sell your home.
CLOSING DATE DETERMINES 24-MONTH HOME-SALE TEST
DEAR BOB: I want to sell my home as soon as possible, while still getting that two-year IRS exemption of $250,000. If I list my home now, does the 24-month time limit go from my purchase closing date to the date I received the buyer’s signed offer or to the title transfer date? – Scott B.
DEAR SCOTT: Internal Revenue Code 121 requires you to own and occupy your principal residence at least 24 of the 60 months before its sale to be eligible for up to $250,000 tax-free capital gain profits (up to $500,000 for a qualified married couple).
That means you must hold the title at least 24 months. However, you can sign a sales contract within less than 24 months if the actual title transfer date occurs after you have held title more than 24 months. For full details, please consult your tax adviser.
PROBLEMS OF LIVING ON A PRIVATE ROAD
DEAR BOB: I live on a private road with eight houses. It has become a parking lot. One car has not been moved in over a year. Another moved a couple of times. I live across the street from these parked cars. If I park my car on my side of the street, no cars can get by to the rest of the road. The situation looks tacky. Is there any way to remedy this situation as the police department says they have no jurisdiction? – Maxine B.
DEAR MAXINE: The police are correct that they lack parking control on a private road. Where I grew up in Minnesota, I lived on a similar private road. Our neighbors informally agreed none of us or our guests would park on the narrow private road.
When someone had a party with guests, they were instructed to park a half a block away on a wider street. I can’t recall a car ever parking on our narrow private street.
If you have a homeowner’s association, check the governing CC&Rs (conditions, covenants and restrictions) for any parking restrictions. If there are no restrictions, perhaps you can invite all the neighbors can get together at a neighborhood party to work out acceptable rules (as my parents did) to benefit everyone.
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