Tax Rebate Details Nearly Final....What will you do with it?

The eternal question.... to save or spend!

By: Matt Mansfield
Marketing Director, ERA Reardon Realty

As many of you may have heard on the news, a tax rebate check may be headed to your mailbox in early Summer. Good news for sure! You will most likely receive between $600 and $1,800 depending on your marital status, yearly earnings and if you have cheldren. NOW, the real question for our flagging economy is, "Will it help"?

That depends on you...

Lawmakers are counting on the fact that you and everyone else who gets the check will go and blow it as "fun money" on electronics, meals and vacations, etc. The history of tax returns and rebates does point to the fact that most of you have done exactly that in the past. This however is not the past.

If you want my advice, and I am not sure if you do, I would save the money. The economy is weak and jobs are unpredictable. Put the money in the bank, especially if you are living paycheck-to-paycheck. There are many online savings accounts that will pay 4-5% interest!

While spending the money on an X-Box 360 or a flat screen TV does feel good in the short term, here is a list of just a few things that "creep up" on us that you should most likely save the money for:

1. Loss of a job. If you unexpectedly lose your job you will need as big of a cushion as possible to tide you over. Enough said...

2. Medical BIlls. If you get injured, you could have hefty bills to pay. Even a trip to the Dentist can get pricy.

3. Car repair. You just can never see this one coming, and you need your car.

4. Gas Prices. We could see prices of $4 per gallon this year. Keep a supplemental "gas fund" in the bank.

5. Paying down credit cards. Paying some extra dough on those high interest credit cards can save you money each month in the form of a lower payment, not to mention help your credit score ;)

6. Prom, Dances, Cars, etc for Teenagers. If you have a teenager, these expenses never stop.

7. Excess Mileage on your lease. If you chew up your lease miles, don't roll them over into your next lease! Pay them off at the end of the term with your saved money. Financing negative equity is a bad idea.

8. Christmas! Don't put gifts on your credit cards next year. Bank some cash and pay all of your Christmas bills on time!

9. Downpayment on a new car. You never know when your car will die. Coming up with a downpayment on short notice can mean not paying other bills.

10. Downpayment on a house!If you are looking to move or become a homeowner for the first time this year, start banking that downpayment now!. With historically low interst rates it could be the best investment you could make!


So there you have it...the choice is yours. Spend or Save? Only you can decide. Me, I am going to try and save it, but one of those unexpected expenses will unboubtedly creep up in the near future and take it from me. That's exactly why it will be waiting in my online savings account.

What do you think? Let me know by clicking on the "Comments" link under this story.

Have a good one,

Matt

Fix your finances in a day

Setting aside a vacation day to focus on personal money tasks could end your procrastination and save you -- or make you -- quite a bit of money. Here's how.

By Liz Pulliam Weston
Article published on MSN Money

Money blogger J.D. Roth of Get Rich Slowly floated a great idea a few months ago: taking a personal "Money Day" to fix whatever's wrong with your finances.

Roth was inspired to write about the idea after taking a few hours off work to finally close his checking account at a much-hated bank and open one at a consumer-friendlier credit union. (For more on why switching may be a good idea, read "Ditch your bank for a credit union.")

"It was one of the best financial decisions I've ever made," Roth wrote. "If I could solve one financial problem in a few hours, just imagine what I could do with an entire day."

Talk back: What would you tackle during a day off devoted to finances?

Think about it: Most of us have way too much to do and too little time to do it, so difficult or mundane tasks often fall to the bottom of our task lists. Because financial chores can be both difficult and mundane, it's easy to put them off indefinitely, even though doing so can cost us.

Wouldn't it be nice to stop telling yourself you'll fix your financial problems when you "have the time" and actually get it done?

You could continue trying to work such tasks into a regular day or use the 24/7 availability of many online resources to do it on a weekend. But Roth argued for taking vacation time from work and devoting an entire weekday to the task. Not only are you more likely to have access to all the resources you need, but using up a day of paid leave time helps up the ante -- you'll want to make sure the day pays off for you.

Focus on the biggies
Here are some chores you might check off your list:

Set up a high-rate savings account. Having a savings cushion is a great idea in any economy but particularly smart when a downturn may be ahead. Typical banks pay less than 1% on their FDIC-insured savings accounts, but online banks may offer several percentage points more. You can find the highest-paying institutions using the tool at MSN Money's banking center. Once your account is set up, you can arrange an automatic transfer from your brick-and-mortar checking account.


If your resolution this year is to firm up your finances, Liz Pulliam Weston has some tips to boost your credit scores.

Start tracking your spending. If you don't know where the money goes, find out. You can:

Carry a notebook and pen to write down every expenditure.

Use personal finance software such as Money or Quicken to download your bank and credit card transactions into your computer. (Both offer free trials, Money for 60 days and Quicken for 30.)

Try an online tracker like Wesabe, Geezeo, Mint or Quicken Online. The first three are free; Quicken Online charges $2.99 a month after a 30-day free trial.

Once you know where you're spending your money, it's easier to find places to trim so you can redirect the money into debt repayment or savings.

Microsoft Office Online: Learn how to use Excel to track your banking and spending

Get a better interest rate on your credit cards. If you have credit card debt, paying it off should be among your priorities. That's easier to do if your interest rates aren't in the ionosphere. Read "Get a better deal . . . with a threat" for tactics that consistently win rate cuts for folks who have good credit. If your credit is bad or you've already fallen behind on your minimum payments, you may need to make an appointment with a legitimate credit counselor (read "The consumer's guide to credit counseling") and/or an experienced bankruptcy attorney to discuss your options.

Find a better rewards card. If you pay off your credit card balances every month, then make your diligence pay off with a card that matches the way you spend and the way you like to be rewarded. Read "The 15 most rewarding credit cards" to see which plastic leads the pack.

Continued: Fine-tune your 401(k)

Roll over those old 401(k)s. Change jobs a few times and you can leave a litter of 401(k) accounts behind in your wake. See if you can transfer the old accounts into your current employer's plan (that means a call to Human Resources) or roll them into an individual retirement account. Any brokerage or mutual fund family will help you with the paperwork to transfer the money into an existing IRA or set up one. Not sure where to start? Charles Schwab, E*Trade or TD Ameritrade can be good discount brokerage options, or try Vanguard, Fidelity or T. Rowe Price.

Look at retirement planning
Re-balance your 401(k). Many people pick their 401(k) investment options more or less at random and then never alter their haphazard choices. This approach can leave you overexposed to risk, hurt your returns or both. It's smarter to pick an asset allocation that reflects your tolerance for risk and time until retirement, then periodically re-balance. (Re-balancing means moving your investments around to restore the mix of stocks, bonds and cash to your original target mix.)

You can find answers to many of your 401(k) questions in MSN Money's Fast Answers, and MSN Money's 401(k) Quick Check will compare your available funds' performance and risk records. Your company may offer advice on its own. (See "Even bad 401(k) advice is better than none.") If your company doesn't provide investment help, you can find you can get specific fund recommendations from FinancialEngines.com for $39.95 a quarter.

Or you can take the easy way out and put all your money into your plan's "life cycle" or "target date maturity" fund. These funds pick the investments and asset allocation, re-balancing as necessary. For target-date funds, look for names like Retirement 2015 or Retirement 2030, which are supposed to align with the year you expect to retire. (Here is a list of Morningstar top-ranked funds with target dates 2000 to 2014, from 2015 to 2029 and 2030 and beyond.) Life-cycle funds tend to keep a steady asset allocation over time and may be divided into "conservative," "moderate" and "aggressive" options, while the target-date funds typically reduce risk exposure over time. Vanguard, Fidelity and T. Rowe Price offer well-reviewed funds of this type; if your plan doesn't have one of their options, look for a life-cycle or target-date fund with an expense ratio below 1%.

Getting around to insurance, college, wills
Raise your deductibles. One of the easiest ways to save money on car, home and even health insurance is to agree to pay more out of pocket before your coverage kicks in. If you have no savings, you might want to skip this step for now, but read "3 costly myths about insurance" to understand why savvy consumers choose higher deductibles and pay the smaller expenses on their own as soon as they can.

You might even reconsider whether you need anything more than liability on your car at all. (See "Drop the insurance on your clunker.")

Get some insurance quotes. Shopping for insurance is a pain. There's no way around that. But because you can potentially save hundreds or even thousands of dollars, it's worth the effort at least every few years. You can get an individual online quote for auto insurance, life insurance, health insurance or homeowners insurance, or you can check out sites such as Insure.com and Insweb.com. Have your current policies nearby. Note which insurers have been advertising heavily in your area; they might be offering breaks as well.

Set up a 529 college savings plan for your kid. Your financial priorities should be saving for your own retirement and paying off any toxic debt (credit cards, payday loans, etc.). But as college savings expert Joe Hurley of SavingForCollege.com notes, it's also a good idea to get into the habit of saving for your children's future education, even if it's just $25 a month. Fortunately, 529 plans will let you start with that little (or even less), as long as you sign up for automatic monthly transfers from your checking account. Morningstar.com compiles a list of the best and worst 529 savings plans that can help you decide what to look for (and to avoid). If your state offers a tax deduction, you might want to start with its plan. If you don't get a tax break, you can't go too far wrong with the age-weighted plans run by Vanguard, T. Rowe Price, TIAA-CREF or Fidelity.

Draft a will. If ever a task was designed to encourage procrastination, it's creating a will. But our hard-wired reluctance to consult our own mortality can create a nightmare for those we love -- and sometimes for ourselves (read "3 legal documents you shouldn't live without" for details).

If you have minor children, you need to do this now. Read "Who will take care of your kids if you die?" for the reasons why it's so important to get over your inertia.

If your resolution this year is to firm up your finances, Liz Pulliam Weston has some tips to boost your credit scores.

Quicken WillMaker can help you draft the necessary documents. If your situation isn't complicated, it may be all you need. But if you have a lot of debt, a contentious family, a sizable estate -- say, $1 million or above -- or other complicating factors, make an appointment with an estate-planning attorney for help.

You may have more financial tasks on your list, and getting everything done in a single day may not be possible. So highlight two to four tasks that are the most crucial and knock those out first. When you're done, share the results of your Money Day -- or your plans for the next one --

How to fix: Credit woes

America's middle class is facing a debt crisis. To solve it, the US needs to rein in credit card companies and home lenders.

By Richard Conniff, MSN Money

The numbers coming out of the credit crisis are astonishingly ugly: The average American household now spends 14% of its disposable income just paying interest charges on mortgage and consumer debt; some sources estimate that up to 2 million families will lose their homes through foreclosure over the next two years.

Where have we seen trouble like this before? Oh, right -- during the Great Depression.

This time around, things started back in 2001, when the middle class went on a credit binge, borrowing against the rising equity in their homes as if it were a third household income (because even two incomes no longer seemed like enough).

Predatory lenders encouraged the trend, often pushing families to refinance into mortgages with deceptively low teaser rates. Now the real cost of those loans is becoming crushingly evident as the teaser rates expire and real-estate values decline.
So how do we get out of this mess? And how do we keep it from happening next time? Here are some of the reforms that have been proposed recently:

Ban "universal default." Credit card companies say it's not enough to pay your credit card bill promptly; you have to pay all your other bills on time, too. (If you didn't hear them say it, that's because it was buried in the 30 or 40 pages of fine print in your contract.) Even if you're just a month behind with the phone company, for instance, your credit card issuer can automatically jack up your interest rate as high as 32.5%. Critics say some companies actually target borrowers who are likely to get in trouble, because that's where the profit is.

Credit card companies say they're just protecting themselves by charging more for people whose changing financial circumstances make them riskier bets. They also say they're invoking this type of treatment, called "universal default," less often these days. But the language still appears in about 45% of credit contracts, according to Joe Ridout of the advocacy group Consumer Action, and it remains an "underhanded and fundamentally unfair" way to take advantage of people "who believe they are playing by the rules."

A proposed reform would allow the penalty interest rate but would require that it be based solely on a borrower's experience with the credit company.

Mandate strong underwriting standards. Legislation now before Congress would limit no-document loans. These quickie loans were originally meant to help real-estate investors, the self-employed and other short-term borrowers who were willing to pay a little more in order to minimize the paperwork hassle of a full loan

application. But they became a tool for selling pricey loans to unqualified borrowers -- typically with 2 or 3 points tacked onto the interest rate.

Proposed legislation would also require lenders to make sure borrowers are qualified to pay not just the short-term teaser rate, but also the potential maximum interest rate.

Make brokers pay for predatory loans. Under another proposed reform, all mortgage brokers would be required to post a surety bond of $50,000 -- like the guy who trims the tree or fixes the plumbing -- and to provide proof of $500,000 in individual net worth. That way, brokers who sell predatory loans could be held individually liable for a borrower's excess costs if unfair terms cause the deal to go sour. Video: When a child gets sick

Other legislation would make it easier for borrowers to sue deceptive lenders. Right now, mandatory binding arbitration, a standard part of almost all credit agreements, forces borrowers into private arbitration forums that can function, says Linda Sherry of Consumer Action, as "kangaroo courts."

If these proposed reforms sound promising, Elizabeth Warren warns not to get your hopes up. Warren, a Harvard law professor specializing in credit and bankruptcy issues, says the likelihood of the House, Senate and White House all signing off on significant reform is "probably near zero" -- because the lending industry "can make lots of political contributions and hire all the lobbyists in the world." Besides, Warren says, the legislative process is too cumbersome and erratic. She believes it takes independent regulators to develop the expertise necessary to respond quickly to changes in the marketplace. Which brings us to her big idea:

Create a Credit Product Safety Commission. A regulatory agency for the credit industry would function, says Warren, like the Consumer Product Safety Commission -- the federal agency that alerts us when lead paint turns up in toys from China or when a crib poses a choking hazard for toddlers.

But is the credit issue important enough to warrant the creation of a new bureaucracy?

"Whoa!" says Warren. "I'll tell you how important it is. It's consumer credit that is bringing the middle-class American family to its knees. It's the tricks-and-traps pricing model that offers an extraordinary amount of credit to every American family, and then -- for every family that does not handle it with the care and precision of a surgeon -- jerks the legs out from underneath that family and leaves them in enormous trouble.

"Consumer credit is as much a product as car seats

and children's toys, and it's a product that affects a family's well-being. You cannot buy a toaster in America today that has a one-in-10 chance of exploding and burning down your house. But you can buy a mortgage today that has a one-in-10 chance of exploding and costing a family their home."

Moreover, Warren says, the lender often knows on signing that the borrower faces that kind of risk -- and doesn't have to disclose the knowledge.

"In my view, it's just a safety issue," says Warren. American consumers should not have to "walk into the marketplace saying, 'Gee, this is a place where I could forfeit my entire economic security because of tricks and traps that even a specialist lawyer would have a hard time understanding.'"

John Hall, of the American Bankers Association, argues that banks are already thoroughly regulated by the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency, among others. But Warren replies that those agencies focus on the soundness and profitability of lenders, rather than on the safety of consumers.

Bypass the credit industry with social lending. If reform proves impossible, the free market offers an intriguing alternative: Consumers wary of doing business with traditional lenders could do business directly with one another instead.

"Social lending" Web sites like Prosper, LendingClub, Zopa, Fundable and Kiva -- still a minuscule part of the credit business -- facilitate peer-to-peer (or P2P) loans by cutting out the middleman and sometimes offering more-attractive rates to the principals in a transaction.

Of course it's smart to proceed cautiously with any new approach. Potential lenders should note that different sites have different rules for diversifying your investment and minimizing risk; some emphasize the social good you can accomplish, while others are more business-minded.

But it's worth noting that the investors in these sites include some of the same smart people who helped launch Skype, eBay, PayPal and Google. So social lending could yet become a major force in middle-class lives.

New Law Helps Ease Pain for Some Facing Foreclosure or Short Sale

On December 20 President Bush signed into law H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007. While this piece of legislation is far from being a cure for all the ills caused by the recent and on-going meltdown in the real estate mortgage sector, it will certainly provide relief for some who are caught between declining home values and rising mortgage payments.

It has been widely noted lately that, in certain circumstances, parties undergoing foreclosure or short sales may also face tax bills on the "phantom income" generated by debt forgiveness. Here is a brief example: Suppose you had refinanced your home for $550,000 and that, now, when you have to sell, its value is only $500,000. Your lender might agree to a short sale, and discharge your mortgage debt even though the payoff was $50,000 short. The catch for you is that you might receive a 1099 from the lender, and be taxed on the $50,000 of debt forgiveness. You see why it is called "phantom income." (There are, in fact, generally good reasons for taxing debt forgiveness, but that is a whole other discussion.)

H.R. 3648 will provide relief from that kind of tax bite in certain specified situations. Beginning January 1, 2007 and lasting until January 1, 2010, certain discharges of mortgage indebtedness on a principal residence will be excluded from a taxpayer's gross income. As always, though, certain restrictions apply.

For one thing, the amount of indebtedness is limited to $2 million. For most of us folks, this will not present a problem.

Of greater relevance is the fact that, to be excluded, the debt discharged must be acquisition debt. That is, the mortgage must have been used to purchase the home. Suppose, for example, that you have lived in your home for twenty years, that you bought it back when it was "only" $200,000, and that, by now, you have refinanced it up to $650,000. Suppose, also, that your neighbor purchased his home just last year, and that he took out a $650,000 mortgage to finance the transaction. Now, both of you need to sell and your homes have decreased in value to $600,000. If you both are granted short sales by the lender, you will both have mortgage debt forgiveness of $50,000. Under H.R. 3648, his debt forgiveness will not be taxed because it was acquisition debt. Yours, however, will be. Bummer.

H.R. 3648 will also have relevance in situations where there is not a sale, but where the borrower and lender have restructured the loan and, along with other possibilities such as interest rate and/or payment reductions, the loan balance has been reduced. In such cases the debt forgiveness will not be taxed as ordinary income, but the amount of debt forgiveness will be applied to a reduction in the borrower's cost basis in the property. This way, it may subsequently be at least partially recaptured by the IRS in the form of capital gain tax.

Finally, we note that this tax exclusion only applies in situations where the debt forgiveness resulted from a situation related to a decline in the value of the property or to the financial condition of the borrower. You wouldn't benefit from it if your mortgage was reduced as a form of payment for services rendered to the lender (suppose you were the bank president).

H.R. 3648 won't solve all the problems out there, but it will certainly be of help to some. That is probably a good thing.

Mortgage Interest Rates Down Again!

30-year fixed rate at 5.57%; 10-year Treasury yield at 3.87%

Monday, January 07, 2008

Source: Inman News

Long-term mortgage interest rates were down again Friday, and the benchmark 10-year Treasury bond yield dipped to 3.87 percent.

The 30-year fixed-rate average sank to 5.57 percent, and the 15-year fixed rate slid to 5.11 percent. The 1-year adjustable rate was down at 5.38 percent.

The 30-year Treasury bond yield edged up to 4.38 percent.

Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.