It’s Always Smarter to Buy a Home Than to Rent--or Is It?
Today’s second installment of our four-part series of personal finance quizzes in recognition of National Consumer Protection Week focuses on housing issues. Tuesday’s installment looked at credit questions; still to come are insurance and saving/investing.
The Housing Quiz:
1. I should consider refinancing my home when:
A. Current interest rates are 2 percentage points or more below my mortgage rate.
B. When loan rates drop as little as one-half of 1 percentage point and I’m planning to remain in my house for a long time--or at least for more than the amount of time it would take to repay the refinancing costs.
C. When I want to alter my loan terms--in other words, if I want to go from an adjustable-rate loan to a fixed-rate.
D. All of the above.
E. None of the above.
2. Refinancing my home has no impact on my liability for the debt.
A. True. No matter whether I got a mortgage loan to purchase a house or to refinance it, I’m obligated to pay or risk losing my house. I have no further liability.
B. False. Refinancing converts my mortgage from so-called “non-recourse” debt to a “recourse” debt. That means that, if I default on a home-purchase loan, the lender can take my house and nothing else. If I default on a refinanced loan, the lender can go after my other assets too, if the home’s value is not enough to cover the lender’s losses on the transaction.
3. Buying a home always gives me a break on my federal income taxes.
A. True.
B. False. It provides tax breaks only if the mortgage interest expense that you pay (and your other deductible expenses, such as charitable contributions and state taxes) amount to more than your standard deduction amount.
4. It’s always smarter to buy a house than rent one.
A. True. If you rent, you’re throwing your monthly payments down a rat hole.
B. False. It’s smarter only when you want to stay in one place for quite a while because the cost of owning and trading real estate, including property taxes, maintenance, brokerage and loan fees, can amount to far more than what you’d “lose” by paying rent.
5. The federal tax impact of selling my house is similar to selling a stock. If I sell it at a gain, I pay capital gains taxes. If I sell it at a loss, I take capital loss deductions.
A. True
B. False. If the house is your primary residence, where you have lived for at least two of the last five years, you don’t pay any federal tax on up to $250,000 in gains per person or up to $500,000 in gains per couple. But you also don’t get to declare capital loss deductions if you are unfortunate enough to lose money on a home.
Answers
1. D; 2. B; 3. B; 4. B; 5. B
Thursday: The Insurance Quiz
Times staff writer Kathy M. Kristof is a syndicated columnist. Write to her in care of Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail kathy.kristof
@latimes.com.
