Will Mortgage Interest Deduction Be Targeted?

Hold onto your wallets, folks. The failure of the congressional “Super  Committee” to specify ways the United States can reduce spending in the next ten years means that everything having to do with taxes is likely to be scrutinized in the effort to shore  up national solvency.

Some say that the mortgage interest deduction —the biggest break available to many American taxpayers— is sacrosanct and not likely to be scrubbed.  But there is the lingering memory of the time when interest on all debts, not just a home, could be deducted when tax preparation time came around. Interest on credit card debt, car loans, student loans and other large-ticket purchases could be taken out of the final tax tally.  In the mid-1980s when they were eliminated, then-President Reagan pled for retention of the mortgage interest deduction or it may have met the same fate. Reagan defended the mortgage interest deduction as a factor in promoting home ownership, one of the prime elements, he claimed, of the “American dream.” The fact that those other interest benefits were axed is enough to make taxpayers wary as the debate heats up again.

The Joint Congressional Committee, in its widespread look at all the possibilities, noted that the mortgage interest deduction cost the country’s tax coffers some $90 billion in 2010. According to IRS figures, 51.1 percent of all homeowners in the United States claimed the deduction, while 31.6 percent did not have a mortgage and 17.3 percent  didn’t claim the deduction.  The loss of the deduction would be highly unpopular with a large portion of the population and it certainly would be a hard-fought battle.

Although American homeowners have come to expect this tax break, few comparable countries—Australia, Canada and Great Britain among them—do not provide their taxpayers this advantage. They might wonder what behavior the U.S. would be trying to encourage by removing the benefit. Rentals as a preference over home ownership?

Appearing before the U.S. Senate Committee on Finance recently, Robert Dietz, an economist and vice president of the National Association of Home Builders said removal of the home interest benefit would increase the disparity in economic income and cause further shrinkage in the middle class.

However, the deduction overwhelmingly favors the rich. The limits are quite high—up to $1 million on a mortgage’s value and an additional $100,000 for home equity loans. The amount that can be deducted does not fall as people’s incomes rise. Someone with two or three homes falling under the $1 million limit significantly benefits.  It hasn’t become an open issue yet among the people who support movements such as the Occupy Wall Street line of thought, but it could if the tension between the haves and have- nots intensifies.

Most experts agree that in the current housing market, elimination of the mortgage interest break could exacerbate conditions that already are problematic. The effects of the deduction are not the same everywhere in the country, but the many factors that will enter into any debate on the matter tend to be emotional, especially among those who  teeter on the edges of being able to afford a home.

Experts say there would be some trade-offs. A spokesperson for Moody’s Analytics noted that the tax deduction is written into the cost of a home. Its elimination would  have a negative impact initially, especially  in higher-end housing. On average, its demise would cost a taxpayer no longer able to claim the deduction about $2,400 a year in additional taxes.

No one knows where the current rancorous stalemate in Washington will lead. But it seems inevitable that the debate over finances portends study of every element of the current tax system. And the conversation in today’s financial atmosphere is likely to focus more on federal revenues than on what the mortgage interest deduction is supposed to accomplish in behalf of home ownership.

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Free Mortgage Calculator Widget

If you have a personal finance blog or your site is about helping people improve their financial situation, then you might enjoy using this finance widget on your web site. Buying a new home and getting a mortgage can be a daunting process. Some people are scared that they won’t be able to afford the monthly payments. This calculator will show you what your payments would be on a loan based on the interest rate and the length of time of the loan.

Instructions for installing this widget are easy. Just click the get free calculator and then copy and paste the text onto your web site. If you run a WordPress site, just simply add the code to a widget text block.

Please leave any comments or suggestions for improvements and we will try to implement them. Enjoy this free mortgage calculator for your blog or web site.

Buying a Home? Prepare, Compare, Negotiate

The U.S. Housing market has taken some heavy blows in the slowly mending recession, but it is not dead. People are buying and selling houses. But if you are in the buying mode, it is more important than ever that you be informed. A recent release by the Federal Reserve Board, titled “Looking for the Best Mortgage” has several key words: Prepare, Compare and Negotiate.

Determine Your Best Mortgage Payments

Start the process by an honest and realistic assessment of your ability to purchase a home. Be certain up front how much you can afford for a down payment and closing costs. Use a free mortgage calculator to determine your monthly payments. Start with your credit report. If it is less than perfect, due to illness or temporary loss of income, don’t just give up, assuming that you would be limited to high-cost lenders. If the information in the report is accurate but you have good reasons for the negatives, explain them to a potential lender or broker. If the less-than-perfect report can’t be explained, you probably will end up paying more. But don’t assume. Ask how a past credit history affects the price of a loan and what you would need to do to offset the current bad rating. You can obtain a current credit report by visiting www.annualcreditreport.com or calling 877-322-8228. Or go directly to the reporting agency. Equifax: (800) 685-1111; TransUnion: (800) 99196-8800; Experian: (888) 397-3742.

Mortgage Lending

Be ware of the types of lenders, including commercial banks, mortgage companies, thrift institutions and credit unions. Different lenders may quote you different prices. Contact several and compare. You may work through a mortgage broker, who would arrange a transaction rather than lending money directly. Remember that a broker is not obligated to find the best deal for you unless you have signed a contract. Consider contacting more than one broker, just as you do with the lending institutions. It may not be clear if you are dealing with a lender or a broker. Some institutions operate in both capacities and their advertisements likely do not use the word “broker.” Ask if a broker is involved in your potential purchase. A broker is usually paid a fee separate from and in addition to the lender’s origination and other fees. His compensation may be in the form of “points” paid at closing or as an add-on to your interest rate or both. Ask how your broker will be compensated so you can compared the various fees. Negotiate if it is appropriate.

Shop and Compare Mortgage Lenders

Be sure to get mortgage information from several lenders or brokers. Just the monthly payment or the interest rate is not enough. Seek information about the same loan amount, loan term and type of loan so you can compare the details. Interest rates fluctuate, sometimes several times in the same day. Even very small differences may make an impact on your payment. Ask if the rate is fixed or adjustable. If you choose an adjustable rate, keep in mind that when the rate goes up, so will your monthly payment. Get the details. Ask about the loan’s annual percentage rate, which takes into account not only the interest rate but points, broker fees and certain other credit charges, expressed as a yearly rate. Points are fees paid to the lender or broker and often are linked to the interest rate. Usually, the more points you pay, the lower the rate, to compensate for the larger amount. Your local newspaper has information about current rates and points. Ask that points be quoted as a dollar amount rather than as a number of points. A home loan is likely to involve several fees such as loan origination or underwriting, broker, transaction, settlement and closing costs. Some are negotiable. Ask. Application and appraisal fees often are required when you apply, others are paid at closing. You may be able to borrow the money to meet fees, but that will increase the loan amount and total costs. “No cost” loans may be available, bu they usually involve higher rates. Several items may be lumped into one fee. Ask questions until you understand what each fee is for.

Down Payment Requirements For Mortgages

Down payment requirements vary. They range from as little as 5 percent to 20 percent, depending on the lender’s policy. If a smaller down payment is involved, the lender may require the purchase of private mortgage insurance. Government-assisted programs such as FHA, VA or Rural Development Services generally require substantially smaller down payments. Don’t look just at the amount, be informed on all the variables.

Negotiating Your Mortgage Terms

Once you have the background information on what lenders offer, prepare to negotiate. Be aware that on any given day, lenders and brokers may offer different prices for the same loans to different customers, even if they have the same loan qualifications. Loan officers and brokers often are allowed to keep some or all of this difference as extra compensation. Such higher prices are termed ” overages.” When they occur, they are built into the prices quoted to consumers. Have the lender or broker write down all the loan’s associated costs and see if any of the elements can be waived or reduced. Be sure that one fee is not lowered while another is being raised through points. You may simply ask for better terms, quoting those more favorable that you have found elsewhere if that would be helpful. Once you feel you have done the best possible, you may want to lock in the loan. Be clear on the rate you have agreed on and how long the lock-in lasts. A fee, sometimes refundable at closing, may be charged for the lock-in. The arrangement also could backfire on you if interest rates go down while you’re waiting to close. Again, time to negotiate a compromise if possible.

Legal Protection For Home Buyers

Remember that there are laws that protect you as a potential home buyer. The Equal Credit Opportunity Act prevents discrimination based on race, color, religion, national origin, sex, marital status or age or whether any part of your income comes from a public assistance program The Fair Housing Act provides the same protections, adding handicapping conditions and familial status to the conditions that cannot be used as determinants for loans. A consumer cannot be refused a loan or charged more or offered less favorable terms because of any of the listed conditions.

For most Americans, a home is the most significant purchase they make. It is a process that should involve your best effort. Take your time. Prepare. Compare. Negotiate

Changes in Refinancing Fannie Mae, Freddie Mac Loans

A recently announced (Oct. 24, 2011) new federal refinance program may offer a solution for as many as 1 million distressed home owners. Changes to the Home Affordable Refinance Program (HARP) were made in an effort to attract more eligible borrowers who can benefit from refinancing their home mortgage. The new, more lenient requirements will be available to homeowners who are current on their payments, regardless of how much their property values have dropped.  Those who have failed to maintain a good payment record will not be eligible.

Eligibility Requirements

• The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.

•  The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

•  The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.

• The current loan-to-value (LTV) ratio must be greater than 80%.

• The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.

Being “underwater” keeps millions of Americans from benefiting from record-low mortgage interest rates. The term refers to homeowners who owe more than their homes are worth, often because of falling values that are beyond their control. One in four homeowners with a mortgage falls into the “underwater” category. That’s more than 11 million people and their frustrations add to the current drag on the housing market in particular and the broader economy in general.

On average, underwater mortgage payers are stuck with a 5.7 percent rate on a 30-year fixed mortgage, according to CoreLogic and the Associated Press. A drop to today’s average rate of 4.11 percent on the same mortgage would save the purchaser of a $250,000 home more than $200 per month. That could put tens of billions of dollars into consumer spending, economists say, a worthwhile kick for the lagging economy.

For many Americans, a few hundred dollars per month is the difference between paying their mortgages and walking away from the property.

The new government plan, with full details still to be announced, would reduce refinancing fees and provide guarantees calculated to put lenders more at ease when issuing loans.  It would encourage shorter-term mortgages and apply to borrowers who are only slightly above water.

While by no means the sole answer to the nation’s economic woes, this partial relief for many underwater homeowners is a positive step in the right direction.

Secure Your Home During Foreclosure

Losing your home is bad enough, but walking away and leaving it empty and a target for vandalism, theft and illegal activity just adds to the problem.  You are still liable for the property during the foreclosure process, experts remind those who are affected. They say that malicious or even unintentional damage to an empty home can cost mortgage lenders and homeowners considerable money. Insurance may not cover repair costs.

It may pay in the long run to prevent a property from looking vacant.  Would-be vandals, thieves and illegal interlopers (who may use property for such things as illicit drug manufacturing) may think twice if the property has the appearance of being occupied.  Experts offer these suggestions for minimizing the prospects of damage:

Lock up: One unlocked window could invite unwelcome invasion. An insurance company may make it grounds to deny a potential claim. Double check to see that all entrances are secure.

Winterize: Shut off the main water valve. Drain water from plumbing, using compressed air, if necessary, to remove all remnants of water. Even a small leak can cause extensive, expensive damage.

Keep up maintenance: There are property preservation companies that specialize in giving vacant sites a “lived-in” look. They perform such services as maintaining lawns and yards, keeping mail and debris picked up, shoveling snow and generally making the property appear neat and occupied. If you can’t afford such a service, ask friends or neighbors for help in maintaining and monitoring the property.

Unplug: Even when turned to “off” an appliance can still draw a little power, so make sure all plug-ins throughout the property are disconnected. This move also can minimize the potential for fire.

Monitor: Test and retest smoke and carbon monoxide detectors and security alarms. Put in fresh batteries and test again before vacating the property.

Taking the steps to secure  an empty home may fend off a lot of headaches in the future.

 

Mortgage Calculators

Many of us don’t have the talent to make complicated computations to figure out what your mortgage is actually going to cost you and what your monthly payments will be. A mortgage calculator is an automated tool to aid you in doing this before negotiating a mortgage transaction. This tool gives you an overview of your financial responsibility if you choose to get a mortgage on your real estate investment.

When you are shopping for a house you want to own or rent, you first want to think about all aspects regarding the house and the cost before making a decision. Using a mortgage calculator in the privacy of your home is more convenient than doing so in the presence of a mortgage lender.

If you are just starting to have a family and you are not yet earning much, renting is a good option for now. Furthermore, whether you are a first time buyer or an experienced buyer, a mortgage calculator is always the best thing to use for estimating the mortgage costs.

Your income, loans, debts, and available interest rates will determine how much you are allowed to borrow. Although most people know their monthly expenses, their idea of how to compute the monthly mortgage payment is another story. The mortgage calculator is the answer to know what you can afford by comparing the interest rates, loan terms, and down payment.

It estimates your monthly payments. It is a relief to have this type of calculator in determining the mortgage that is most beneficial to you from the different options available. The calculator is a handy tool to use before asking your lender for advice and making a new purchase. It will keep you on the right track. Take time with the numbers to see what you can afford and your financial situation can improve. Putting the information in a spreadsheet is another tool you can use that will help in discussions with the your lender.

Calculating mortgage payments is such a complicated task. Instead of acquiring the services of an agent to make you understand the figures, why not use a cost-free mortgage calculator which has been tested and proven to be authentic. Mortgage calculators are blessings to homeowners interested in real estate. Before these calculators, buyers had to use interest rate tables to compute the variables of the mortgage. It is common knowledge that complex mathematical computations are very hard to comprehend.

Bankrate.com has an online calculator that you can use for free. You will only have to type in all the information asked such as your monthly income and additional earnings, housing expenses, loans and insurances plus the amount to be converted. After this, the calculator will give you the amount and monthly payments that meet your requirements. It can also show you how many years you can shorten your mortgage payment time based on whatever additional payments you think you may be able to make. Using a mortgage payment calculator can be crucial to helping you make one of the most important buying decisions of your lifetime.

Federal Reserve Rate Remains The Same So What Should Do We Do?

Should I Refinance My Mortgage?

Having the advice of someone who is an economist from Quicken loans, is probably a little better than the advice I can get through my local connections.

So Bob Walters, from Quicken loans, if you say that “Homebuyers and homeowners looking for a new mortgage need to navigate this uncertain market carefully,” I will take heed. I’m not really looking for a new mortgage but for those of you that are, well…proceed with caution. Read more