Your Financial Health, Ask Jamie - Part 3

July 05, 2009

Discussing financial well-being

In part three of our "Ask Jamie" financial Q and A series, Jamie explains capital gains, home refinancing, and how to work with a home lien.

This time around, Jamie helps make sense of capital gains, offers advice on home refinancing, and shares how to work with a home lien.

Hi Jamie,

I just purchased a new home and sold my old home. My old home was paid for, so all of the money I got was mine. Is the money from the sale of my old home a capital gain? Do I have to claim it on my income tax return for 2009? Thank you. - Pat. Cincinnati, OH

Dear Pat,

Capital gains are the difference between the sale price of your home and the original purchase price, plus any major home improvements. If the home was your principal residence for two of the past five years, your first $250,000 in capital gains is tax free. If you're married, your spouse can claim an additional $250,000 in capital gains tax free. You'll have to claim anything over the $250,000 allowance as income on your tax return.

Please remember to provide all financials related to the sale of your former home and the purchase of your new home to your tax advisor to ensure all items are reported and handled appropriately for tax purposes.

Congratulations on your new home.

Dear Jamie,

I owe about $50,000 on my mortgage and it will be paid off in about 10 years. My interest rate is 5.25, should I try to refinance now? - Terry. Cataula, GA

Dear Terry,

Low mortgage rates can be very attractive and tempting, but the truth is in the details. When shopping for a new loan, identify all of the points and fees associated with the loan, understand the total repayable including those fees, and then compare that amount to the payment total you'll make over the next 10 years on your current loan.

All lenders are required to provide you with fee disclosures.

With the interest rate and term you have left, you may have difficulty finding a loan that will save you money. Starting with your current lender may give you an opportunity for a lower rate. Shop around and read all the fine print.

Good luck.

Hi Jamie,

My son is the co-owner of my house, which was only for the purpose for combining incomes to be able to get the house. I've paid the mortgage from Day 1, and he hasn't lived in the house for years. He's behind in child support over $20,000, which caused a lien to be put on the house. I want to refinance to lower my mortgage and interest rate. But I'm told I can't because of the lien. I can't afford to pay off the lien. What can I do? - Pat. Kenosha, WI

Dear Pat,

Your mortgage lender is correct in that any liens on the property would have to be satisfied to refinance the existing loan. If the agency that filed the lien would be willing, they could work with your lender to agree to what's called lien subordination, allowing the lender to rewrite the loan in front of their lien.

Also, your lender may work with you to modify the terms on your original loan, providing some type of rate modification that would just change your existing terms with no additional cash to you.

Ultimately, if your home is to be sold or deeded to another party, this lien will have to be satisfied and you'll need to start planning how you or your son will accomplish this. Good luck to you.

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