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SMART MONEY: Renting a home gives more flexibility than buying

by By BRUCE WILLIAMS on July 28, 2013 2:50 AM

DEAR BRUCE: My husband and I want to purchase a home. My husband is a graduate student working full-time.

That said, we have a choice of either renting or purchasing, and we are leaning toward the purchase option because it will take several years to finish his degree.

I would like to purchase a home so we can do alterations for our children, and we may not be able to do that in a rented home.

Also, we must decide whether to take a fixed-rate mortgage or, as a mortgage broker keeps pushing, an adjustable-rate mortgage.

She seems to think that we would be far better off with an adjustable rate because we are buying for the short term.

The mortgage will adjust at two-, three-, four- or five-year levels — the shorter the adjustment period, the lower the initial interest. What do you think? — Reader, via email

DEAR READER: You are in a difficult period in life and complicating it by buying a new home at this point, in my opinion, is a mistake.

At least when you are renting, you can forecast to some degree when you are going to leave, and you have no other responsibility except to look for a place at your next location.

As to the fixed-rate or adjustable-rate mortgage, there is no way I would ever recommend an adjustable-rate mortgage. All that does is delay paying off the house.

In the days when the value of a house “always” went up, maybe an adjustable mortgage would have had some merit, but those are days are behind us, at least for the time being.

I think you would be better off to rent. Hopefully, you can find a home you can adjust to your needs. After graduation is the time for buying.

DEAR BRUCE: In response to an earlier letter about car insurance, anybody who is driving a $3,000 car probably cannot afford to replace it. Although the insurance companies will try to talk you out of carrying collision on these cars, the fact is that when somebody hits your kid’s car, it’s probably going to be totaled.

The opposing insurance company will, at minimum, say the accident was partly your driver’s fault and knock a few hundred off of the settlement price, leaving you with the option of eating it or trying to go to small claims court and losing some unknown days of wages to do that. If you talk to your own insurance company, they will regretfully inform you that since you don’t have collision on the car, they can’t help you.

This happened to me twice with my kids. I finally got smart and kept high-deductible collision coverage on every vehicle, and the two other accidents that totaled the vehicles were paid out at Blue Book value with no questions asked. — F.O., Topeka, Kan.

DEAR F.O.: I don’t agree with anything you had to say. I continue to point out that collision insurance on $3,000 cars is relatively expensive. If you feel that you would have a problem with replacing the car, I have no major objection to carrying the insurance, as long as you recognize that you are paying a great deal more on a percentage basis to insure a $3,000 car than a $30,000 car.

Send questions to Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.

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