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ASK KIM
Ditch the Dreaded PMI
by Kimberly Lankford
I thought private mortgage insurance could be dropped once equity hit 22%. My house was appraised for $230,000 and I owe just $122,000, but my lender still won't cancel the costly PMI. What can I do?
--Deanne Conners, Swedesboro, N.J. For loans taken after July 29, 1999, the lender is generally required to drop PMI when equity reaches 22% of the property's value at the time you took out the mortgage. But in figuring your equity, the lender doesn't have to count any appreciation in value; only your down payment and the principal portion of your monthly payments are considered equity. That could be your problem. (Some lenders do take appreciation into account on request.)
One way to get out of paying PMI is to refinance. Based on your equity in the house and your good credit history, you shouldn't have a problem getting a new loan, says Dave Herpers, director of consumer affairs at Amerisave Mortgage. Of course, refinancing only makes sense if the money you save by lowering your rate and eliminating PMI exceeds the closing costs on the new loan.
Disappearing shares
As an AT&T Wireless shareholder, I was pleased when the Cingular takeover went through in October because I figured that the Cingular stock had to do better for me. But when I checked my brokerage account, my AT&T Wireless stock was gone, and there was extra cash in my money-market fund. Is that legal? What happened to my Cingular stock?
--Adam Einstein, Culver City, Cal.
Yes, it's legal. In fact, it was the only choice. Cingular is not a public company, so there was no stock with which to compensate AT&T Wireless shareholders. The $41-billion takeover was an all-cash deal, with Cingular paying $15 for each AT&T Wireless share. (You should have had a chance to vote on the merger last spring.) Because your shares were held by your broker, the cash went straight into your account.
Tax-free profits
I am helping my mother relocate from Florida after being battered by two hurricanes. Mom bought her home for $98,000 in 1994, and it will sell for about $210,000. She received a capital-gains tax exemption for a house she sold previously, and she is under the impression that a homeowner can receive an exemption only once. Is this true?
--Julia Nell, Jupiter, Fla.
Your mom is thinking of the old rules, which allowed a once-in-a-lifetime chance for taxpayers age 55 and older to treat up to $125,000 of home-sale profit as tax-free. Thanks to a change in the rules a few years ago, taxpayers of any age can now claim a tax-free profit of up to $250,000 on the sale of a home ($500,000 for married taxpayers). And this break can be claimed multiple times, as frequently as once every two years. To qualify, the taxpayer must own and live in the house for two of the five years before the sale. Based on your numbers, all of your mom's profit will be tax-free.
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