Having a good credit score is important because it helps you get better terms and interest rates on loans and credit. It’s also good because you’ll typically have more loan options available to you. That’s why, even if you don’t have excellent credit, it’s important to keep your score at least above 620. Recent changes in the mortgage market have caused mortgage lenders to tighten their credit standards. This has meant that folks with impaired credit, who were able to get home financing in the past, may find that getting a mortgage now may be more difficult. This is all the more reason why improving one’s credit score is so important.

click here for article

search for : good credit score

rEager to cash out of their real estate or businesses, some property sellers are being drawn to a new strategy to help put off paying capital-gains taxes. The recent approach, called a structured sale, is being marketed more aggressively by some financial firms in the wake of the recent Internal Revenue Service clampdown on another tax-deferral strategy called a private annuity trust. The IRS and tax courts haven’t yet opined specifically on structured sales. Some tax lawyers believe the strategy is likely to pass muster if it is implemented carefully, although there’s always a risk the deals may be disallowed. The IRS declined to comment on the strategy.

The market for structured sales is still small. But Allstate Corp., which began offering structured sales in recent years, says it expects the overall market to grow to about $14 billion within five years from about $100 million last year. Another big insurer, Prudential Financial Inc., also offers structured sales. A host of small financial firms around the country typically act as brokers to arrange the deals with individual consumers. Critics say the strategy doesn’t make sense for many property sellers. Costs can add up: The broker putting the deal together earns a commission, which is usually 4%, and there are typically set-up fees of between $500 and $1,500, plus legal and accounting fees. What’s more, the seller’s proceeds are essentially locked up in an annuity that currently pays about 4% to 5% (which is net of the commission). (more…)

search for : structured sale

Out of 131 million 1040s filed for 2004, there were 4 million math errors. If you make one of those 4 million errors, then mailing off your return is only the beginning of your headaches. Ernst & Young compiled a list of common errors. Some errors are simply careless. The easiest error to check if found with a a double-check of your math, the IRS does not give partial credit for getting the right formula but adding wrong. You might have done everything right, except for forgetting to carry a one, but the IRS doesn’t care. It will fine you for the difference. If, on the other hand, your careless math error leads you to overpay, who knows whether you’ll get that money back. It certainly could take a while.

click here for article

The United States Congress is re-visiting the mortgage banking laws, with the idea of further regulation of the lending industry. Consumers are experiencing financial problems from excess borrowing. Should lenders not allow borrowers to take mortgages that aren’t suitable for them? Should lenders who do allow it held liable? This series of articles from Mortgage 101 will attempt to answer the question “should lenders be liable for mismatched home loans?”

click here for article

Would you take out a 30-year car loan? Okay, you’re probably thinking that sounds outrageous, so let me take it down a bit. How about a 10-year auto loan? If you’re financing the purchase of a car with the equity in your home, that is exactly what you could be doing — paying for a car over 10 or even 30 years. The use of home-equity loans, lines of credit and cash-out refinancing to purchase automobiles grew in the last decade as interest rates dropped and property values soared.

It also has become popular as lenders hype the fact that interest on a home loan is tax-deductible, unlike interest on a vehicle loan. In 2006, about 24 percent of homeowners used a home equity line of credit to purchase a car or truck, according to Synergistics Research, a financial services market research company based in Chamblee, Ga. About 8 percent of homeowners took out a second mortgage specifically to buy a vehicle, says William H. McCracken, chief executive of Synergistics. But is buying a car or paying off your remaining auto loan balance with the borrowed equity from your home a good financial move? (more…)

search for : home-equity loans, lines of credit, cash-out refinancing, vehicle loan, home equity line of credit

I was asked by my friends at The Wall Street Journal Prime Rate to review their website.

A first look shows that the site concentrates on displaying the current Wall Street Journal Prime Rate, which is explained by the site as the “interest rate charged by banks when they lend money to other banks, or to their prime business customers”.

Further discussion informs me of the history of the prime rate since December 1, 1947, which is table of facts that I did not readily know.

After reading a portion of the site’s discussion concerning the financial term “prime rate”, my interest was piqued to the extent that I did some research on the subject.

From early times, “prime rate” has been the interest charged by banks to their most credit worthy customers. Although the “prime rate” itself is now a rate of return that bears little relationship to the creditworthiness of the banks’ commercial borrowers, the “prime rate” still varies little among banks. Adjustments are usually made by most all North American banks at the same time. The frequency of change normally happens on a quarterly or semi-annually basis.

So, if banks no longer base their “prime rate” on commercial lending data, just how do banks set their lending rate? Since the mid 1950’s, banks have been advertising their lending rate as a function of the “prime rate” which is technically “The Federal Funds Rate”. That data point is decided at Federal Open Market Committee (FOMC) meetings by the Board of Governors of the Federal Reserve.

Jay

Jemima and Ricardo Sanon, 30 and 29, saw the possibility of trouble before they ever signed their mortgage documents in 2004. The Sanons had diligently saved $5,000 in preparation to buy their first home, but the sum was just enough to cover the closing costs. So to finance the $290,000 purchase price of a Waltham, Mass home, they took one loan for $232,000 and also a piggyback loan for $58,000, both from New Century Financial, a subprime lender.

The smaller of the two mortgages didn’t worry them. The terms were fixed for 30 years at 10.7 percent, and the monthly payment of $538 was something they felt they could handle. But the larger loan was fixed for just two years. After that, the rate would adjust every six months, which is typical for subprime borrowers. “I worried about how we would make payments when they increased,” said Jemima, a medical assistant. “The mortgage broker [at New Century] told us we could refinance.” A spokeswoman for New Century declined to comment on the specifics of the Sanon’s case citing privacy issues, but she did issue this statement: “New Century is offering special programs that are designed exclusively for current New Century borrowers who are most susceptible to payment shock at the reset of their loans.” (more…)

search for : closing costs, piggyback loan, New Century Financial, subprime lender, subprime borrowers