DEAR BOB: I read in the newspapers that banks soon will be issuing a new type of home mortgage. The article said this is expected to increase the supply of mortgage money. I presume that means interest rates will drop. Do you think we should wait for these new mortgages before buying a home? -- Barry T.
DEAR BARRY: No. The Comptroller of the Currency, who regulates national banks, has authorized them to make adjustable rate mortgages (ARM). The interest rate can change up to 1 percent every six months with no limit on the total ARM increase during the 30-year mortgage term. Since the monthly payment won't immediately adjust to reflect interest rate changes, it's possible for the borrower to find himself owing more principal tham was owed when the loan was made. It's called negative amortization" and its very dangerous for the borrower.
If you thought variable interest rate mortgages and renegotiable rate mortgages were bad for borrowers, the new ARM loans are even worse. Of course, the S & Ls want them. ARM availability probably won't result in lower interest rates for borrowers anytime soon.
Buy your home now without a new mortage. Every day thousands of buyers purchase homes by taking over old interest rate mortgages. The seller usually helps finance the sale with a second mortgage at a below market interest rate. Smart buyers avoid high cost mortgage lenders by purchasing a home with seller financing.
DEAR BOB: After being on the waiting list over a year for a choice apartment house, I finally got an apartment there. The rent is reasonable. Should I take the offered one-year lease or a month-to-month rental. Since I am 73, I worry that if I get sick and must move to a rest home I'll be stuck with the lease payments. -- Josephine T.
DEAR JOSEPHINE: Take the lease. Leases protect tenants from rent raises and unjustified evictions. But leases give no benefit to landlords, because if a tenant want to break a lease, he or she will find a way to do it.
DEAR BOB: Is it true that the "over 55 rule" $100,000 home sale tax exemption expires this year? -- Harry H.
DEAR HARRY: No. That rumor keeps popping up and it's not true. There is no expiration date on the $100,000 profit tax exemption for home sellers age 55 or older.
Further details on this law are in my report "Everything You Want and Need to Know About the $100,000 Home Sale Tax Exemption." To obtain your copy, send a $2 check payable to "Newspaperbooks" for Report 80107 to The Washington Post, P.O. Box 259, Norwood, N.J. 07648.
DEAR BOB: I am a dentist who is tired of paying rising rent for my office. But I can't easily move because (1) my equipment is built-in and (2) office rents are rising all over town. A Realtor friend has suggested I buy my office building and convert it into a condo. He will handle all sales. bWhat do you think? -- Dr. Terry H.
DEAR DR. TERRY: First, buy a six- or 12-month option to purchase the building so you tie up the purchase price and terms. Then make a feasibility survey to determine demand from potential buyers, financing possibilities and any condo conversion problems such as city, county or state approvals.
There have been some successful office condo conversions and you can expect more as rents rise. For further ideas, read David Clurman's excellent book "The Business Condominium" (John Wiley and Sons), available at larger libraries.
Write Robert Bruss at Box 6710, San Francisco, Calif, 94101.