DEAR BOB: I have an adjustable-rate mortgage. The payment is due on the 15th day of each month. If I make my payment by the fifth of the month, will I be saving money because the interest calculation for the following month will be at a lower principal amount? Does it make a difference or should I let my money sit in my bank and earn whatever interest they pay? – Diego M.
DEAR DIEGO: If you have an amortized mortgage with the monthly payment due on the first day of each month, but with a 15-day grace period, there is no advantage paying before the 15th of each month. But never be late.
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If your payment is received on the 16th day of the month, the late charge applies. At today’s ultra-low bank interest rates, it makes no sense to wait until the 15th day to make your mortgage payment.
However, if you have a “simple interest mortgage” where interest is computed on a daily basis, then it pays to make your payment on or before the due date, such as the first day of the month.
The reason is a simple-interest mortgage lender charges interest on a daily basis so the earlier you pay the more interest you save. Simple-interest loans are usually home equity loans, mobile home loans, and auto loans.
CAN EX-HUSBAND REMOVE EX-WIFE’S NAME FROM THE DEED?
DEAR BOB: I just got divorced. My ex-husband got the house. He wants me to remove my name from the deed. I agreed as soon as he removes my name from the mortgage. He says he can remove my name from the title without my signing anything. Can he? I don’t want to be responsible for the mortgage if my name is not on the title. We are not on good terms. He will try anything to spite me. The divorce decree did not say he has to refinance to get my name off the mortgage – Cheryl S.
DEAR CHERYL: Your ex-husband cannot remove your name from the home’s title. Only you can do that by signing and recording a quit claim deed to your ex-husband.
However, only the mortgage lender can remove your name from the mortgage obligation that you signed. Most mortgage lenders refuse to do so. If your ex-husband doesn’t pay the mortgage on time, your credit report and FICO (Fair, Isaac and Co.) score will be adversely affected.
The only practical way to get your name off the mortgage is for your divorce attorney to insist, as part of the divorce settlement, your ex-husband must refinance the mortgage in his name alone. Please contact your divorce attorney for full details.
MUST RENTAL HOUSE SELLER PAY TAX ON $200,000 CASH?
DEAR BOB: I inherited a house worth $200,000. Then I rented it to tenants. It is now worth around $500,000. I want to sell it, spend about $300,000 from the sales proceeds to acquire another rental property, and pocket the remaining $200,000 cash. How much will be tax-free? – Byron A.
DEAR BYRON: You can make an Internal Revenue Code 1031 tax-deferred exchange using the $300,000 you wish to reinvest in another rental or investment property. However, you will owe capital gain tax on the $200,000 cash you plan to take out of the exchange. Your tax adviser has full details. More information is in my special report, “How the New Tax Tax-Deferred Exchange Rules Can Make You Very Wealthy,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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