When fed rate rises, some homeowners lose, others may win

The widely expected increase in short-term interest rates by the Federal Reserve Board likely will have an uneven impact on borrowers across the nation.

Q. Our newspaper has been filled with stories lately about the Federal Reserve Board planning to raise short-term interest rates. Why would it do this when the housing market is getting better?

A. The rate-setting Federal Reserve works in mysterious ways, but its members usually make the right decisions.

Fed Chairwoman Janet Yellen recently said it likely would be "appropriate" to raise short-term interest rates before the end of this year, perhaps as early as next month. Raising rates curbs borrowing by companies and individuals alike, which slows the economy and keeps it from overheating.

Homeowners who have adjustable-rate mortgages or those with adjustable home-equity credit lines would feel the pain of a Fed rate hike almost immediately. That's because rates on most ARMs rise or fall quickly in tandem with the short-term rates that banks pay to borrow from the government.

Introductory rates on the popular 5/1 ARMs - which have a below-market fixed rate for the first five years of the loan and then automatically convert to a rate that typically adjusts once a year for the remainder of the term - recently stood at about 3.5 percent. If the Fed raises short-term rates by one-half of 1 percent and banks pass along the increase to new borrowers, it would tack on $42 a month to the payments on a 30-year, $150,000 loan.

Oddly, though, an increase in the Fed's short-term interest rate actually might push down the cost of new fixed-rate mortgages. That's because fixed-rate loans tend to track rates on longer-term Treasury bonds and notes.

If a Fed rate hike convinces investors that inflation will remain under control over the next several years, they won't demand higher yields and might even consider accepting less, which theoretically should translate into a drop in rates on new fixed-rate mortgages for future buyers and refinancers.

Real estate trivia: It's hard to believe, but the Federal Reserve has held the benchmark short-term rate that it charges to lenders from 0 to 0.25 percent - a maximum 2½ cents on a dollar - since the end of 2008.

Q. We have a large apricot tree in our backyard. Is it true that its fruit can make dogs and cats sick or even kill them, or is that just an old wives' tale?

A. Apricots can indeed sicken household pets, according to a representative for the American Society for the Prevention of Cruelty to Animals. That's because their stems, leaves and seeds contain naturally occurring cyanide.

If you have a dog or cat but don't want to tear out your tree, at least keep it well trimmed. Safely and quickly dispose of the trimmings or any fruit that drops to the ground.

Amazingly, the ASPCA has identified nearly 1,000 different fruit trees, flowers and other types of vegetation that can threaten the health of domesticated pets. They range from apple and cherry trees to carnations, daffodils and daisies.

The complete list can be found on the Internet at www.aspca.org/toxic.

Q. We recently purchased a new home and had to pay several hundred dollars in transfer taxes to the county. Can we deduct the amount on our next income-tax return, just as we always did with the property taxes we paid on our previous home?

A. Sorry, but no. Although property taxes can be deducted every year, transfer taxes that are charged when a real estate sale closes are treated differently by the Internal Revenue Service.

Most local governments now charge transfer taxes, which easily can run into the hundreds or even thousands of dollars. They were originally created to help offset the cost of updating public records when a property was sold. Today, though, many municipalities use the revenue for a variety of purposes, from repaving roads to building new parks and homeless shelters.

Though you cannot deduct the transfer taxes you recently paid on your upcoming tax return, you can include it your home's adjusted-cost basis to reduce any taxes you might owe when you eventually sell.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2015, Cowles Syndicate Inc.