Personal Finance Q & A

Home buyers dodge extra mortgage expense

Q. My wife and I are closing on a house, while our current house is on the market. To make a large enough down payment to avoid private mortgage insurance (PMI) payments, we sold some stock. Was this wise in retrospect? Do we have to pay capital gains on the proceeds, even though they are going toward a house purchase?

D.G., Fayetteville, N.C.

A. You were "absolutely wise" in avoiding PMI, says Gary Schatsky, a financial planner and lawyer in New York.

"PMI is very expensive and nondeductible" at tax time, he says. It is generally imposed on home buyers who put down less than 20 percent as a down payment.

Alas, you will have to pay the capital-gains tax on the proceeds, he says.

Q. I am in my early 80s, and have some $50,000 which I have taken out of certificates of deposit. What type of investment would give me a fair return but still be quite safe?

H.H. Chadron, Neb.

A. "Go to your bank and put your money in short-term US Treasury securities," says Paula Hogan, a financial planner in Milwaukee. She recommends you buy one-year securities and roll them over each year.

To avoid the bank's commission charges, you can buy them directly from a local office of the US Treasury.

Alternatively, says Ms. Hogan, "invest in a short-term US Treasury bond fund, or a corporate bond fund, with low costs."

The issues in the corporate fund should be of highest possible quality, she says, carrying AAA ratings. She likes Vanguard mutual funds (800-662-7447) for their low expense ratios.

Q. I would like to open a mutual fund. But the fund company form says that if I move and change addresses and seek to clear my account, I may have to get a signature guarantee. Is that common?

T.N., Queens, N.Y.

A. Yes. Some financial firms do require signature guarantees, to ensure that withdrawn money is sent to the right person and not someone claiming to be the account holder.

With a signature guarantee, the sell order must be taken to a financial institution such as a bank or savings-and-loan, where a bank officer can vouch (guarantee) that the signature is yours. The guarantee is a way of protecting your account.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

(c) Copyright 1999. The Christian Science Publishing Society