Making Extra Payments
The concept of debt reduction and making extra payments have been around for quite some time. Several financial planners and gurus teach this method. Debt "rolldown" is the idea of using your extra money to paydown your smallest debt first, and then using the money you were spending on that debt to paydown your next biggest debt, etc.
Many disagree with this concept for several reasons. First, when you begin making extra payments, you never have access to those funds again. You can’t call the credit card company and say “I need the extra payment back because the transmission just went out on my car!”
Secondly, these plans usually recommend not to use any credit cards. Credit cards can actually be a tremeandous tool if used correctly. The problem of course is most poeple use credit cards the wrong way and carry a balance and incur interest charges month after month. It takes alot of discipline and hard work to follow an extra payment plan. It’s very important to have an emergency fund! With extra payment plans you're trying to use every spare penny you have to pay-down your debts. This doesn't allow any flexibility in case something unexpected comes up.
When you stop and think about how you manage your money you'll find you're helping the bank but may be hurting yourself.
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Mortgage Adjustments: A Rude Awakening
About $50 billion in adjustable rate mortgages are resetting now, driving interest rates up for many borrowers. Despite efforts to raise awareness, it doesn't look like anyone is really prepared for what's to come.
Most borrowers are likely to scramble to pay the higher expenses, some of which could jump as much as 50 percent or higher.
When asked whether they were confident or worried about making their monthly mortgage payments over the next few years, 41 percent of homeowners whose adjustable rate mortgages (ARMs) had already reset said they were worried. Only 18 percent of pre-reset borrowers were concerned.
Future delinquency rates and foreclosures could soar. And while October was the peak this year for resetting ARMs in 2007, new records will be set in early 2008; March will see more than $100 billion in resetting loans.
Do you have an adjustable rate mortgage that could be facing a restting interest rate in the near future? We'd love to hear from you as to your fears (or not) about what may happen to your monthly payment. Leave us your comment about this, or any aspect of the mortgage market below. Your email address is needed to post a comment, but we respect your privacy and your email address will not be shown along with your comment. We look forward to hearing from you.
Will the Fed Cut Rates Again?
Federal Reserve Chairman Ben Bernanke said the central bank's rate cut in September has shown signs of success, but cautioned that lenders and investors must bear responsibility for financial decisions that caused the subprime mortgage meltdown.
The Fed slashed the federal funds rate, a key short-term interest rate that impacts rates on consumer loans, by a half of a percentage point on September 18. Bernanke said the rate cut, combined with an earlier cut to the symbolic discount rate in August, helped to "reduce some of the pressure in financial markets" and that "the improved functioning of financial markets is a positive development."
Investors looking for a sign that the Fed may cut rates again at the conclusion of a two-day meeting on October 31 may be disappointed though. Bernanke indicated that the Fed "was prepared to reverse the policy easing if inflation pressures proved stronger than expected."
What do you think? Do you think the Fed will lower rates again on October 31st? Or do you think they will sit tight for now? Tell us what you think by clicking the Comment link below.
Home Builders vs Home Buyers in Santa Clara
The National Association of Home Builders reports that the confidence of United States homebuilders in the market for new single-family homes fell in October to its lowest levels since the series began in Jan. 1985. The reason: continuing problems in the mortgage market, large inventories of unsold units, and the perceived effect of negative media on potential buyers.
NAHB Chief Economist David Seiders said in a statement recently that "consumers are still trying to get the best deals they can and many may have unrealistic expectations as to prices for new homes as well as what they can get for their existing homes.
The good news Seiders said is that builders expect sales conditions to remain stable in the next six months instead of decline further. NAHB’s housing forecast indicates the second half of the year will show significant improvement.
Federal Reserve Chairman Ben Bernanke said recently that the weak housing market will be a “significant drag” on economic growth into next year.
What do you think? We'd love to hear your opinion on the future of the real estate market. Leave us your comment below.
Phantom Income Bll Update:
In a move to relieve some of the burden that faces homeowners filing for foreclosure, the US House of Representatives voted to remove a tax penalty known as "phantom income" tax.
Under present rules, if a lender or creditor forgives all or part of a debt due to a foreclosure or short sale , the amount forgiven is seen as income by the IRS, which is taxable. The IRS requires lenders to send a Form 1099 reporting they cancelled the debt to any homeowners that foreclose or participate in a short sale. The IRS turns around and taxes the homeowner on the "phantom income."
Another portion of the new bill would extend mortgage insurance deductibility through 2014. The current version of this bill is only effective for homeowners who bought in 2007. The guidelines on the current law for PMI deductibility will remain the same - the home must be a new purchase and the homeowner's adjusted gross income must be less than $110,000 annually to deduct the mortgage insurance premium paid.
The new bill will now move to the Senate, where a similar bill is in the works. The White House supports the bill, but wants to limit the tax relief to three years, whereas the current proposed bill would be permanent.
Another positive side of the bill is that it is retroactive to January 1, 2007. Homeowners who fell behind or have foreclosed this year will be able to avoid the phantom income tax under the bill as it currently stands. There is no proposed relief for homeowners who foreclosed in 2006 and earlier.
