Don't let the urge to splurge -- or the need for a new refrigerator -- tempt you into expensive borrowing so that you can lay your hands on your refund a few days sooner.
Article By Bankrate.com
Just discovered you'll be getting a tax refund? Don't let your enthusiasm to spend that unexpected money get the better of you.
Thanks to today's technology, there's really no need to pay extra for a refund anticipation loan just to get your hands on your tax money a tiny bit sooner. If instant cash is more a desire than a need when considering a quick refund, consider these alternatives:
Go electronic
Abandon the traditional paper return sent via the U.S. mail and file from your computer. Last year, more than 73 million taxpayers filed their returns electronically. You'll get the money almost as quickly as you would with a refund anticipation loan, and you won't pay loan fees or interest.
In fact, you may not need to pay for anything. An Internal Revenue Service partnership with tax preparers and software companies offers free online tax preparation and e-filing to some taxpayers. The IRS says that whereas paper filers could wait up to eight weeks for their refunds, most electronic filers can expect their tax checks to show up in their mailboxes in half that time or less. The agency also points out that the error rate is less than 1% for electronic filers.
Direct deposit
Electronic filers who opt for refund direct deposit do even better(.pdf file). More than 61 million people got their refunds this way last year, an 8% increase from the year before.
The IRS says the money generally shows up in taxpayer bank accounts in 10 to 14 days. Even if you file the old-fashioned paper way, having your refund deposited directly into a bank account cuts the time you have to wait for your tax cash. Plus, it's added protection against lost or stolen refund checks sent through the mail.
Use store financing
If you want your refund to finance a must-have new appliance, store interest rates usually will be better.
Many stores offer free financing for limited periods. By then, the refund should have arrived, and you can use it to pay off the store credit -- and pay no interest at all.
Impatience usually wins
Ultimately, a refund anticipation loan is a personal preference, not a fiscal issue for taxpayers.
"Theoretically, with electronic filing and quicker turnaround on refunds, the need for tax-anticipation loans has become obsolete," says John L. Stancil, an associate professor of accounting and tax at Florida Southern College in Lakeland. "However, my observation is that they appear to actually be on the increase, as people become more and more impatient to get their refund.
"One sample I saw from a major company who provides these loans through tax preparers disclosed an annual percentage rate of 264% on the loan. All year long, taxpayers have made the government an interest-free loan, and now they are paying 264% to get their own money back a few days quicker."
Companies that offer refund loans, such as H&R Block, are well aware of such impatience, and that's why the loans survive even as electronic filing increases.
The tax-preparation giant notes on its Web site, "Taxpayers choose refund anticipation loans because they can receive money in one to two days, compared to waiting up to 15 days for a tax refund to be directly deposited into their existing bank account or three to eight weeks for a mailed IRS refund check."
That pitch definitely appeals to those who value speed over cost.
Recently, larger tax-preparation companies have been offering these impatient customers refund anticipation loans on easy-to-use prepaid debit cards. The ease of a debit card coupled with the draw of an "instant refund" tempt customers looking for a speedy return.
With all the pluses of these promises, many customers fail to see the charges incurred for their impatience. These expenses include tax-preparation fees, account fees and finance charges, as well as the fees of the debit cards, which include charges for ATM withdrawals and balance inquiries.
But if you can squelch your refund appetite for just a few days, then you -- and your bank account -- will be better off.
Friday, February 22, 2008
Tuesday, February 19, 2008
5 mortgage moves for 2008
Knowing when and how your adjustable-rate mortgage will reset to a higher interest rate should be your first priority. It can help you determine whether -- and when -- refinancing is the right move.
Published by Bankrate.com on 2/19/08
In 2003, when mortgage rates dropped below 5.5% for a time, it was the Year of the Refinance. The years 2004 through 2006 constituted the Era of the Exotic Mortgage, when home buyers were eager to get any type of loan so they could grab houses before prices were out of reach. Then came 2007, the Year of Reckoning, when home prices went down and the foreclosure rate went up.
And 2008 will be the Year of the Refinance again, but for different reasons than those that drove the refi boom of 2003. Five years ago, low rates spurred people to refinance. In 2008, homeowners will refi because their adjustable-rate mortgages will hit their reset dates, sending rates skyward.
Know when your ARM resets
It's bad form to get caught by surprise when your adjustable-rate mortgage, or ARM, resets. Here's how to not let it happen to you.
First, you have to know what "reset" means. By definition, the rate on an adjustable-rate mortgage goes through at least one adjustment. Those adjustments are called resets. In recent years, the most common kinds of adjustables have been 3/1 and 5/1 ARMs.
With a 3/1 ARM, the initial, introductory rate lasts three years. Then, on the 37th month, the loan is reset for the first time and the rate is adjusted. Typically the rate is reset every 12 months after that. With a 5/1 ARM, the introductory rate lasts for five years and the first reset is at the 61st month.
To check on the reset date, pull out your copy of the loan contract from your well-organized home filing system. On the first two or three pages, there should be a section that details when the rate changes and how the new rate is determined. Look for a little headline that says something like, "Change dates."
The first reset date, and the timetable for subsequent resets, should be in that section.
Find out what your ARM's rate would be if it were reset this month
Just so you'll have an inkling of what you'll be facing, find out what would happen if the rate were to reset now. This step isn't necessary if the reset is a long way off. But if the rate is going to change in 2008, this is something to keep an eye on.
Go back to that loan contract. In the section that discloses the rate's change date, there should be an explanation of how the lender will calculate the new rate. The ARM's rate will be based on an index and a margin. The index is an independent interest rate that is widely known -- the yield on the one-year Treasury note, for example, or the six-month London Interbank Offered Rate (LIBOR).
The margin is a percentage that's added to the index. Let's say that your index is the one-year LIBOR, and that today it's exactly 5%. (It's not; we're just being hypothetical here.) And let's say your margin is 2.25%. If your ARM were to reset today, the new rate would be those numbers added together, or 7.25%.
The margin will be stated right there in the loan paperwork, although it might not use the word "margin" to describe it. As for the index, you can find many indexes online or in the business section of a newspaper.
Once you know the new rate and the amount you owe, figure your monthly principal and interest with an online mortgage calculator.
Home Affordability Calculator Yearly gross income $
Monthly debt payments $
Cash avail. for purchase $
Know if you should refinance sooner rather than later
To refinance, your house has to be worth more than the amount of the refinanced loan. Your equity is the difference between the house's market value and the amount you owe. If the house is worth $200,000 today and you owe $180,000, that $20,000 difference is the equity. With a $200,000 house, that would be 10% equity.
The more equity you have, the easier it's going to be to refinance. If you have less than 5% equity, it might be difficult to qualify for a refinanced mortgage. Difficult, but not impossible -- if you have a decent credit score. Preferably, you will have 10% equity; ideally, you'll have 20% or more. If your home has been losing value in this down market, you probably are aware of it from reading the newspapers, gossiping with neighbors and occasionally checking Zillow.com. In cases where the percentage of equity is in the single digits while home prices are falling, it might be a good idea to refinance months before the reset date. Wait too long and you might not be able to refi because you owe more than the house is worth.
Get ready to document your finances
During the housing boom, many home buyers eagerly got low-documentation and no-documentation (low-doc and no-doc) mortgages, in which they stated their incomes and assets, but didn't have to provide paperwork to document their personal finances.
Experts believe that most of these borrowers exaggerated their incomes because that was the only way they could get approved for their loans. Had they been required to submit W-2s and tax returns, they would have been turned down for loans because of insufficient income.
In 2007, the rising foreclosure rate was blamed partly on these borrowers. Most of them got ARMs, and they were able to scrape by and make their monthly payments during the introductory rate period. But when the ARMs reset, these borrowers found themselves falling behind. That trend will continue in 2008.
Spurred by self-preservation, lenders have cracked down, and now they're demanding documentation of income and assets from most borrowers. Don't be surprised if a lender wants not only W-2s and tax returns, but also bank and brokerage statements.
If you lied about your income to qualify for an ARM and now you can't refinance because of documentation requirements, you're not going to get any sympathy. When you signed the promissory note, you swore under penalty of perjury that you were telling the truth.
Buying? Bring a down payment
House prices are falling in many major markets. Your lender doesn't want to give you a big pile of money for a house that's going to be worth less than the loan balance in a few months. So your lender is going to want a cushion. The down payment is that cushion.
During the boom years, it was easy to buy a house with a down payment of 5% or 3% or even with no down payment at all. Those deals aren't as common anymore.
"I think we're going back to where 10% is going to be the standard for a down payment," says Mitch Ohlbaum, president of Legend Mortgage Corp., in Los Angeles.
What are your experiences?
Published by Bankrate.com on 2/19/08
In 2003, when mortgage rates dropped below 5.5% for a time, it was the Year of the Refinance. The years 2004 through 2006 constituted the Era of the Exotic Mortgage, when home buyers were eager to get any type of loan so they could grab houses before prices were out of reach. Then came 2007, the Year of Reckoning, when home prices went down and the foreclosure rate went up.
And 2008 will be the Year of the Refinance again, but for different reasons than those that drove the refi boom of 2003. Five years ago, low rates spurred people to refinance. In 2008, homeowners will refi because their adjustable-rate mortgages will hit their reset dates, sending rates skyward.
Know when your ARM resets
It's bad form to get caught by surprise when your adjustable-rate mortgage, or ARM, resets. Here's how to not let it happen to you.
First, you have to know what "reset" means. By definition, the rate on an adjustable-rate mortgage goes through at least one adjustment. Those adjustments are called resets. In recent years, the most common kinds of adjustables have been 3/1 and 5/1 ARMs.
With a 3/1 ARM, the initial, introductory rate lasts three years. Then, on the 37th month, the loan is reset for the first time and the rate is adjusted. Typically the rate is reset every 12 months after that. With a 5/1 ARM, the introductory rate lasts for five years and the first reset is at the 61st month.
To check on the reset date, pull out your copy of the loan contract from your well-organized home filing system. On the first two or three pages, there should be a section that details when the rate changes and how the new rate is determined. Look for a little headline that says something like, "Change dates."
The first reset date, and the timetable for subsequent resets, should be in that section.
Find out what your ARM's rate would be if it were reset this month
Just so you'll have an inkling of what you'll be facing, find out what would happen if the rate were to reset now. This step isn't necessary if the reset is a long way off. But if the rate is going to change in 2008, this is something to keep an eye on.
Go back to that loan contract. In the section that discloses the rate's change date, there should be an explanation of how the lender will calculate the new rate. The ARM's rate will be based on an index and a margin. The index is an independent interest rate that is widely known -- the yield on the one-year Treasury note, for example, or the six-month London Interbank Offered Rate (LIBOR).
The margin is a percentage that's added to the index. Let's say that your index is the one-year LIBOR, and that today it's exactly 5%. (It's not; we're just being hypothetical here.) And let's say your margin is 2.25%. If your ARM were to reset today, the new rate would be those numbers added together, or 7.25%.
The margin will be stated right there in the loan paperwork, although it might not use the word "margin" to describe it. As for the index, you can find many indexes online or in the business section of a newspaper.
Once you know the new rate and the amount you owe, figure your monthly principal and interest with an online mortgage calculator.
Home Affordability Calculator Yearly gross income $
Monthly debt payments $
Cash avail. for purchase $
Know if you should refinance sooner rather than later
To refinance, your house has to be worth more than the amount of the refinanced loan. Your equity is the difference between the house's market value and the amount you owe. If the house is worth $200,000 today and you owe $180,000, that $20,000 difference is the equity. With a $200,000 house, that would be 10% equity.
The more equity you have, the easier it's going to be to refinance. If you have less than 5% equity, it might be difficult to qualify for a refinanced mortgage. Difficult, but not impossible -- if you have a decent credit score. Preferably, you will have 10% equity; ideally, you'll have 20% or more. If your home has been losing value in this down market, you probably are aware of it from reading the newspapers, gossiping with neighbors and occasionally checking Zillow.com. In cases where the percentage of equity is in the single digits while home prices are falling, it might be a good idea to refinance months before the reset date. Wait too long and you might not be able to refi because you owe more than the house is worth.
Get ready to document your finances
During the housing boom, many home buyers eagerly got low-documentation and no-documentation (low-doc and no-doc) mortgages, in which they stated their incomes and assets, but didn't have to provide paperwork to document their personal finances.
Experts believe that most of these borrowers exaggerated their incomes because that was the only way they could get approved for their loans. Had they been required to submit W-2s and tax returns, they would have been turned down for loans because of insufficient income.
In 2007, the rising foreclosure rate was blamed partly on these borrowers. Most of them got ARMs, and they were able to scrape by and make their monthly payments during the introductory rate period. But when the ARMs reset, these borrowers found themselves falling behind. That trend will continue in 2008.
Spurred by self-preservation, lenders have cracked down, and now they're demanding documentation of income and assets from most borrowers. Don't be surprised if a lender wants not only W-2s and tax returns, but also bank and brokerage statements.
If you lied about your income to qualify for an ARM and now you can't refinance because of documentation requirements, you're not going to get any sympathy. When you signed the promissory note, you swore under penalty of perjury that you were telling the truth.
Buying? Bring a down payment
House prices are falling in many major markets. Your lender doesn't want to give you a big pile of money for a house that's going to be worth less than the loan balance in a few months. So your lender is going to want a cushion. The down payment is that cushion.
During the boom years, it was easy to buy a house with a down payment of 5% or 3% or even with no down payment at all. Those deals aren't as common anymore.
"I think we're going back to where 10% is going to be the standard for a down payment," says Mitch Ohlbaum, president of Legend Mortgage Corp., in Los Angeles.
What are your experiences?
Thursday, February 14, 2008
A lifeline for delinquent mortgage borrowers? Maybe.
This article was published on 2/14 on Bankrate.com
Mortgage lenders desperately want past-due borrowers to open the mail and pick up the phone.
That's the gist of the latest public-private collaboration to address the mortgage crisis. This week, the federal government and six big mortgage servicers announced Project Lifeline, billed by Treasury Secretary Henry Paulson as "a targeted outreach to homeowners 90 days or more delinquent that may lead to a pause in the foreclosure process."
The initiative is more about the outreach than the pause. Industry experts say that delaying the foreclosure sale of a house is standard procedure when the borrower is willing and able to discuss a workout of some kind. So what Project Lifeline really amounts to is the targeted outreach.
"Project Lifeline is aimed at homeowners who face a real risk of losing their home, but have not yet addressed the problem," Paulson says, adding: "Our hope is that today's announcement will reach them, and they will reach out immediately for help."
In other words, Project Lifeline's goal is for seriously delinquent borrowers to stop ignoring the letters and phone calls from their mortgage companies, and instead call and ask for help.
The project is the offspring of a previous initiative, called the Hope Now Alliance, which focuses on past-due borrowers with subprime mortgages. Hope Now set out guidelines to quickly sort which subprime borrowers don't need help, which can stay in their homes with some help and which are in hopeless situations. Under Hope Now, some subprime borrowers can get the introductory rates frozen on their subprime, adjustable-rate mortgages.
Help for all kinds of mortgages
Project Lifeline reaches out to a broader swath of borrowers. It covers all residential mortgages, not just subprime loans. The project comprises six of the biggest mortgage servicers: Countrywide, Wells Fargo, CitiMortgage, Chase Home Finance, Washington Mutual and Bank of America.
They will send letters to their customers who are at least 90 days past due, offering to put off a foreclosure sale by 30 days if the borrower:
-Calls within 10 days of receiving the letter.
-Expresses a desire to avoid foreclosure and keep the house.
-Agrees to financial counseling, if the lender deems it necessary.
-Provides detailed financial information.
Then both sides would have a few weeks to reach an agreement of some kind. Options would include a workout, in which the borrower pays extra each month and catches up on the late payments over time, or a modification, in which the rate or terms of the loan are changed. In rare cases, a modification could even include some debt forgiveness if the borrower owes more than the house is worth
Band-Aid, not a cure
But none of this is new. The exact same options are available after the borrower is 30 days and then 60 days past due. Mortgage servicers say their biggest problem is that they can't get in touch with delinquent borrowers. In about half of foreclosures, the borrower never communicates with the lender, despite the mortgage company's efforts.
At the 90-day delinquency period, borrowers "probably have gotten multiple letters from the lenders at this point. They've probably gotten multiple phone calls from the banks," says Lisa Breier Urban, a real estate lawyer in New York City. "It's possible that the tone will be softer in the Project Lifeline letter that will be sent out, and perhaps that will enable the consumer to want to respond to it."
Urban says she thinks that any help that the federal government can give to homeowners is beneficial.
"That being said, I'm not really sure a 30-day grace period for people who are in foreclosure is sufficient time to work out the terms of a deal. To me, it sounds more like a Band-Aid than an actual remedy. You're giving people a 30-day grace period, but what if you can't work something out? What then?"
Presumably, the deadlines aren't airtight. Few lenders are going to hang up on a borrower for calling two weeks after getting the letter, instead of responding within 10 days. Bottom line, Paulson says: "These are homeowners on the brink of losing their homes. The way I look at it is, everyone we save makes a difference."
Consumer help still murky
There are no details on what kinds of mortgage rescue options will be offered. Floyd Robinson, president of Bank of America's consumer real estate division, says, "We'll look at the individual circumstances and what we believe is appropriate."
Urban says: "I would have liked to have seen a structuring or some sort of guidelines in terms of what they were going to offer the consumer."
Jim Carr, chief operating officer of the National Community Reinvestment Coalition, calls Project Lifeline "a small step in the right direction" and, like Urban, wishes it were more ambitious. The NCRC proposes that the federal government buy delinquent loans from lenders at a steep discount "and make them available to servicers to actually go in and do what needs to be done to make those loans work."
In some cases where homeowners owe more than their houses are worth, part of the debt should be forgiven and the loan refinanced, Carr says. The notion of "short refinances" has been championed by at least one mortgage broker as well as by Sheila Bair, the chairman of the Federal Deposit Insurance Corp.
What do you think?
Mortgage lenders desperately want past-due borrowers to open the mail and pick up the phone.
That's the gist of the latest public-private collaboration to address the mortgage crisis. This week, the federal government and six big mortgage servicers announced Project Lifeline, billed by Treasury Secretary Henry Paulson as "a targeted outreach to homeowners 90 days or more delinquent that may lead to a pause in the foreclosure process."
The initiative is more about the outreach than the pause. Industry experts say that delaying the foreclosure sale of a house is standard procedure when the borrower is willing and able to discuss a workout of some kind. So what Project Lifeline really amounts to is the targeted outreach.
"Project Lifeline is aimed at homeowners who face a real risk of losing their home, but have not yet addressed the problem," Paulson says, adding: "Our hope is that today's announcement will reach them, and they will reach out immediately for help."
In other words, Project Lifeline's goal is for seriously delinquent borrowers to stop ignoring the letters and phone calls from their mortgage companies, and instead call and ask for help.
The project is the offspring of a previous initiative, called the Hope Now Alliance, which focuses on past-due borrowers with subprime mortgages. Hope Now set out guidelines to quickly sort which subprime borrowers don't need help, which can stay in their homes with some help and which are in hopeless situations. Under Hope Now, some subprime borrowers can get the introductory rates frozen on their subprime, adjustable-rate mortgages.
Help for all kinds of mortgages
Project Lifeline reaches out to a broader swath of borrowers. It covers all residential mortgages, not just subprime loans. The project comprises six of the biggest mortgage servicers: Countrywide, Wells Fargo, CitiMortgage, Chase Home Finance, Washington Mutual and Bank of America.
They will send letters to their customers who are at least 90 days past due, offering to put off a foreclosure sale by 30 days if the borrower:
-Calls within 10 days of receiving the letter.
-Expresses a desire to avoid foreclosure and keep the house.
-Agrees to financial counseling, if the lender deems it necessary.
-Provides detailed financial information.
Then both sides would have a few weeks to reach an agreement of some kind. Options would include a workout, in which the borrower pays extra each month and catches up on the late payments over time, or a modification, in which the rate or terms of the loan are changed. In rare cases, a modification could even include some debt forgiveness if the borrower owes more than the house is worth
Band-Aid, not a cure
But none of this is new. The exact same options are available after the borrower is 30 days and then 60 days past due. Mortgage servicers say their biggest problem is that they can't get in touch with delinquent borrowers. In about half of foreclosures, the borrower never communicates with the lender, despite the mortgage company's efforts.
At the 90-day delinquency period, borrowers "probably have gotten multiple letters from the lenders at this point. They've probably gotten multiple phone calls from the banks," says Lisa Breier Urban, a real estate lawyer in New York City. "It's possible that the tone will be softer in the Project Lifeline letter that will be sent out, and perhaps that will enable the consumer to want to respond to it."
Urban says she thinks that any help that the federal government can give to homeowners is beneficial.
"That being said, I'm not really sure a 30-day grace period for people who are in foreclosure is sufficient time to work out the terms of a deal. To me, it sounds more like a Band-Aid than an actual remedy. You're giving people a 30-day grace period, but what if you can't work something out? What then?"
Presumably, the deadlines aren't airtight. Few lenders are going to hang up on a borrower for calling two weeks after getting the letter, instead of responding within 10 days. Bottom line, Paulson says: "These are homeowners on the brink of losing their homes. The way I look at it is, everyone we save makes a difference."
Consumer help still murky
There are no details on what kinds of mortgage rescue options will be offered. Floyd Robinson, president of Bank of America's consumer real estate division, says, "We'll look at the individual circumstances and what we believe is appropriate."
Urban says: "I would have liked to have seen a structuring or some sort of guidelines in terms of what they were going to offer the consumer."
Jim Carr, chief operating officer of the National Community Reinvestment Coalition, calls Project Lifeline "a small step in the right direction" and, like Urban, wishes it were more ambitious. The NCRC proposes that the federal government buy delinquent loans from lenders at a steep discount "and make them available to servicers to actually go in and do what needs to be done to make those loans work."
In some cases where homeowners owe more than their houses are worth, part of the debt should be forgiven and the loan refinanced, Carr says. The notion of "short refinances" has been championed by at least one mortgage broker as well as by Sheila Bair, the chairman of the Federal Deposit Insurance Corp.
What do you think?
Tuesday, February 5, 2008
Homeowners tax relief plan aims for major improvements
I found this article interesting. What are your thoughts on this plan for Lansing? Does Jackson have similar incentives? Would Jackson benefit from similar incentives?
Your Thoughts?
Published February 5, 2008
From Lansing State Journal ]
Mayor's strategy aims to go beyond routine fix-ups
A few years ago, a group of volunteers swooped in upon Denise McCune's Lansing property and did a gamut of home repairs for free.
McCune, 61, said there was no way she could have paid for the repairs on her own.
That is why Lansing Mayor Virg Bernero's proposal to extend tax breaks to typical home-owners has piqued McCune's interest. Bernero said during Wednesday's State of the City address that homeowners could receive 50 percent breaks on the increased taxes from "qualified improvements" and transformations of old, abandoned houses into owner-occupied homes.
"The tax break would be great, but again, you have to come up with the money to do (the improvements)," McCune said. "I don't have the money." And with Michigan's economy struggling, that issue is important.
City officials classify "qualified improvements" as additions and expansions that can cost thousands of dollars. "This goes beyond your general maintenance," acknowledged Bob Johnson, Lansing's Planning and Neighborhood Development director.
Roof repairs and new paint, which do not affect a home's taxable value, would not be considered, he said.
Still, some are applauding the residential tax break program Johnson said will be part of the spring budget negotiations between Bernero and the City Council.
"It's encouraging," said Joan Nelson, director of the Allen Neighborhood Center.
Older housing stock
A significant number of homes on Lansing's east side were built in the first half of the 20th century. "Old housing stock needs constant upkeep," Nelson said.
The mayor's housing task force told Bernero incentives were needed. "The housing stock is fairly aged," said member Lynne Martinez, who also is executive director of the Greater Lansing Housing Coalition. "Many people in the area are economically stressed, and there's a substantial number of rental properties."
Aid for neighborhoods
City officials hope the residential tax break program will inspire families to invest in Lansing and perhaps keep people in the city.
City Council President Brian Jeffries wants more specifics on how Bernero's proposal would work. But he likes the idea that the proposal could benefit and improve city property beyond Lansing's downtown. "This clearly is a program that is directed at the neighborhoods," Jeffries said. "The devil is in the details, and we haven't seen any of the details."
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