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Real Estate Q&A

Do They Buy Now, or Wait for Prices to Drop?

September 30, 2001|ROBERT J. BRUSS | SPECIAL TO THE TIMES

Keeping your important income tax returns for at least 15 to 20 years shouldn't be a severe burden. I keep mine in the garage where they don't take up much space. But I know where they are when needed.

'Teaser' Rates on ARMs Come With Drawbacks

Q: We are in the process of buying our first home. We can obtain a fixed-rate home loan at about 6.75% interest. But the mortgage broker offered us an adjustable-rate mortgage at 4.5% interest. The monthly payment is much lower. The adjustable interest rate is tied to the Treasury bill index. Is a fixed-or adjustable-rate mortgage best today?

A: I suspect that ultra-low 4.5% interest adjustable-rate mortgage (ARM) is just for six to 12 months. It's called a "teaser rate." Did the lender tell you the ARM index and the margin? After the initial teaser period, the ARM interest rate will probably jump to near 6% interest.

That isn't much less than the 6.75% fixed interest rate, which is an excellent bargain. The big drawback of an ARM is the interest rate risk shifts to borrowers if interest rates rise, as they eventually will. In today's home loan market, most borrowers are selecting fixed-rate home loans because there is no interest-rate risk of rising payments for the borrower.

Reverse Mortgage Needs No Monthly Payments

Q: Please clarify your recent brief mention of the Fannie Mae reverse mortgage for home purchase with no monthly payments. Suppose I am a senior citizen who wants to buy a condo on this reverse mortgage plan. Would I have to sell my current residence first? Or could I buy the condo using Fannie Mae's reverse mortgage money?

A: Reverse mortgages are available only for senior citizens' principal residences. Assuming you are 62 or older, the reverse mortgage Fannie Mae HomeKeeper for Home Purchase program will pay about 50% of your principal residence's purchase cost. There will be no monthly payments. You must pay the balance in cash, probably from your savings or proceeds of your current home.

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Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent to 251 Park Road, Burlingame, CA 94010, or visit http://www.bobbruss.com. Bruss suggests consulting an attorney or tax advisor before making important real estate decisions.

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