February 15th, 2008 categories: Finances, Home Ownership, Mortgages
Does it ever make sense for a homeowner to pay off a mortgage early?
According to Kiplinger.com, the answer depends on the interest rate of the loan and the timing of the payoff.
Paying down a 6% mortgage is the equivalent of earning a 6% taxable return on your money. You should be able to beat that return by investing your money elsewhere, especially when investing for the long term.
“If you have a very low interest rate on your loan and know that you can earn a higher return with additional money you have to invest, it’s OK to keep the mortgage,” says Los Angeles CPA Michael Eisenberg.
Investing outside your mortgage also gives you easier access to your funds because you don’t have to borrow against your home equity to get your money. Paying more toward your mortgage can reduce the total interest paid, and you might pay off your loan earlier. But it doesn’t lower your payments, and if you’re still in the early years of the loan, you might not see the difference for a decade or more.
Your priorities may be different, however, if you’re nearing retirement and your mortgage is close to being paid off. In that case, making extra payments can speed up the payoff, lowering your expenses after you leave your job. In Eisenberg’s experience, “most people don’t want to have debt when they retire.”
Paying off the mortgage early made sense for Myrna Oliver, 64, who worked at the Los Angeles Times for more than 30 years. When Oliver was in her mid-50s, many of her colleagues were getting buyout offers. She wasn’t ready to retire yet, but she wanted to be able to jump at a good offer if one came her way. To do that, she needed to cut her post-retirement expenses — especially the mortgage on her condo in downtown Los Angeles.
“I didn’t want the mortgage payments to figure into my retirement spending,” says Oliver.
So Oliver began making extra payments toward her 7.5% loan whenever she got a raise, a bonus or extra money from some other source. At age 60, she paid off the loan — eight years early — and shifted the money to her 401(k) plan to take advantage of catch-up provisions for contributors who are 50 or older. This year, employees in that age range can kick in an extra $5,000, on top of the $15,500 that all workers may contribute.
When Oliver got a buyout offer last year, she had only three weeks to make a decision, but it was a no-brainer.
“Having the mortgage paid off gave me the freedom to take early retirement,” she says — and to take a year off to travel. Full Story
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February 14th, 2008 categories: Finances, Home Ownership, Mortgages
How many times have you done your taxes and, three weeks later, learned you had missed the opportunity for a deduction? Too many, I’m sure. How can you not miss these deductions the next time? Start planning now.
I’ve posted previously about What is Deductibe When Buying a Home, but here are two of the most often overlooked tax deductions for current homeowners that can affect your tax bill for 2007 and your tax planning for 2008.
New points on refinancing
With interest rates so low over the past few years — even in 2007 and 2008 — lots of homes have been refinanced, sometimes more than once.
Any points you pay to refinance your home can be deducted on a monthly basis over the life of the new loan. So, if you refinanced your mortgage on June 1, 2007, for a 20-year term, seven out of 240 months will have passed after Dec. 31. If you paid $2,400 in points, you can write off $70 ($10 a month for seven months) for 2007. You can write off $120 for 2007 and each year thereafter until the points have been deducted in full. The amount may not be huge, but every little bit helps.
Old points on refinancing
This is one deduction lots of people miss. All unamortized points on an old refinancing are deducted in the year of a new refinancing.
So, let’s say you refinanced on June 1, 2006, and paid $2,400 in points. You refinanced again on June 1, 2007. You can deduct all the remaining points on the 2006 loan. That’s $2,280 plus the $50 you could deduct for January through May 2007. Likewise, if you refinance the 2007 loan in 2008 (if interest rates stay low), you will be able to write off the remaining balance on your 2008 return. Full Story
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February 13th, 2008 categories: Finances, Investments, Mortgages
Valentine’s Day is a time for roses, chocolate and sparkly dinners. But according to RISMedia, if you want to ensure your relationship with your partner endures through less-romantic times, be sure to talk about finances. Being on the same page about all of your financial data is a long-lasting way to show each other your commitment.
To help you broach the subject of finances and make sure they are in alignment, they say that we should consider these tips from Marvin Feldman, president and CEO of the nonprofit Life and Health Insurance Foundation for Education (LIFE):
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January 30th, 2008 categories: Home Ownership, Mortgages
Arson is nothing new in Detroit. It’s a time-honored weapon of the angry, vengeful, distressed and dispossessed in a city that gets hurt harder and sooner than others, making it a perfect place to spot early evidence of stress from the real-estate meltdown.
The Detroit Fire Department can’t draw a definitive link between its rising arson rate (151 arrest warrants in 2007), rising foreclosures (up more than 65% last year) and falling housing prices (the region’s median house price dropped 17.3% in the past four years, to $145,173).
But Capt. Steve Varnas of the department’s arson section says he sees a connection: In 2005, the city issued only 80 arrest warrants for arson — about half the number last year. “Things were going great,” Varnas says. “There were fewer desperate people in 2004 and 2005.”
Across the U.S., homeowners are searching for ways to escape from mortgages they can’t pay — or don’t want to. A few are turning to arson, but it’s too soon to turn anecdotes into meaningful statistics. Consumer pressure and state laws require speedy settlements, which means insurance companies are quick to pay up and slower to complete complex arson investigations. Definitive answers will come later.
But the signs of trouble are there if you’re looking for them:
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