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Dealing with Debt Collectors

credit cardsTips and tricks to dispute the accuracy of the items of the credit report with the debt collecting agencies.

You must be aware of the fact that your credit score may drop with erroneous entries on the credit report. You can dispute with the creditors or debt collectors if you find any inaccurate negative information on the credit report. Well, you need to know that inaccurate and positive information on your credit report can’t be removed from it. So, if you’ve erroneous entries on your credit report, you can manage to dispute the erroneous items with the debt collectors directly. If you’re unaware of the tricks to dispute erroneous entries on the credit report then you need to correspond with the debt collector to remove the incorrect entries.

Here are some of the important points that you need to consider when you plan to dispute the inaccurate information from the credit report:

1. Know your rights: Make sure you’re aware of your rights to remove the erroneous entries from your credit report with the debt collectors who reported the information. So, you need to send a dispute letter to the company that provided the information to the consumer reporting agency.

2. Debt collectors job to investigate: The debt collectors report the agencies in regards to credit information immediately. Make sure the time frame of response is same when you send a dispute letter to a consumer reporting agency. In most of the cases, the company has 30 days for investigation and the this period may get extended up to 45 days if you provide additional information. Make sure you get information in regards to the credit information within five business days of completion.

3. The debt collectors may not respond to your letter: Well, the debt collectors may not respond to your letter if you contact the credit reporting agencies to dispute erroneous information on the credit report. If the debt collectors have already responded to the dispute, then it may not respond to your letters any more unless you provide more information.

4. Liability of the debt collectors: According to the Fair Credit Reporting Act, if the debt collector provides information to the CRA, he has to follow certain liabilities.
• Finds out more about dispute reported information.

• Provides accurate and complete information if the reported information is incorrect.

• Informs the credit reporting agency if the consumer disputes information.

• Checks when the accounts are “closed by the consumers”

• Sends the credit report agency with the required details like the month and years of the delinquent accounts given to the collection agency or charged off.

• Needs to complete the investigation of a consumer dispute within 30 to 45 days time span, so that credit report agency can manage to complete the scrutiny.

Therefore, you’re required to keep the above mentioned points in mind when your plan to dispute the accuracy of the items on the credit report with the debt collectors.

***This article was contributed by Anjelica Cullin.

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Should I Refinance My Mortgage?

Mortgage interest rates are at historically low rates.  Consequently, you may be wondering if it makes sense to refinance your mortgage.  Although there may be a variety of reasons for refinancing your mortgage, there are probably three primary reasons for you to refinance your mortgage.

  1. Lower your payments by borrowing money at a lower interest rate
  2. Convert your adjustable rate mortgage to a fixed rate
  3. Access some of the equity in your home (this isn’t as common or easy as it was a few years ago)

Since there are costs associated with refinancing a mortgage, the decision to refinance may not be a slam-dunk.  Essentially, you are paying money today, to save more money later.  As an example, assume that refinancing reduces your monthly payments by $50 per month.  If you have 25 years remaining on your mortgage, you will save $15,000 over the life to the loan.  If you assume you will pay $5,000 in closing costs to refinance, you save $10,000… over the next 25 years.

There are many different mortgage calculators available which will help you calculate your savings.  You can click here for one, or search the internet.  Keep in mind, internet calculators are only estimates, and the computations from your lender may be different.

Here are a few additional things to consider in your decision to refinance.

  • The time value of money – In my simple example above, you save $15,000 over the next 25 years, but you have to pay $5,000 up front.  Not only does it take you over 8 years to recoup your $5,000, you also lost the opportunity to invest that money and earn a rate of return (hopefully).  With interest rates on liquid assets near zero, the time value consideration may be nil.
  • Income taxes – The only refinance costs you can deduct are points paid to reduce the interest rate.  Unlike points you pay when you initially purchase your home, points paid on a refinanced mortgage must be amortized over the life of the loan (25 years in our example).  With a lower interest rate, your current mortgage interest deduction will also decrease, which could cause your current tax liability to increase slightly.  Although you’ll come out ahead by paying less interest over the life of the loan, your total benefit might be reduced by a smaller mortgage interest deduction.
  • Length of ownership – Since it’s likely to take you a couple of years of reduced payments to recoup the closing costs, you need to consider how long you plan to stay in your home.  If you expect to move in the next few years, the monthly savings may not be sufficient recoup your out-of-pocket costs for the refinance.
  • The loan process – The mortgage financing industry has changed dramatically.  It’s not easy for anyone to get a mortgage in today’s market.  I’ve had clients who experienced difficulties and delays in getting their refinancing approved, even though they could have easily written a check to pay off their existing mortgage.  The aggravation may be worth it, but expect the approval to be a hassle.
  • Market value – The fair market value of your home may be one of the biggest stumbling blocks to a refinance.  Market value is what prevented many people with subprime and adjustable rate mortgages from being able to refinance.  If you don’t have sufficient equity in your home, you won’t be able to refinance, even if you’re making your current payments, and the refinance will make it easier for you to continue making your payments.

Many advisors will tell you that the interest rate should at least 0.75-1.00% lower than your current rate for a refinance to be economically feasible, but depending upon your situation and long-term goals, a smaller rate differential might still be beneficial.

My advice is to run the calculation with an online calculator and see if it makes sense to you.  If the closing costs can be recouped within the next 5-7 years, and you don’t plan to sell before then, talk to a mortgage broker and get their advice.  A reputable broker will be able to give you a more accurate estimate of what it’s going to cost, the savings you can expect, and the process involved.

Refinancing your mortgage can save you money.  However, there are costs involved, and you want to make sure the benefits exceed the cost.

The Mortgage Mess: It’s Still Messy

Even though the U.S. economy officially came out of recession in mid-2009, do you wonder why it doesn’t feel that way?  There may be a lot of reasons, but I think the continued turmoil of the residential real estate market is one of the key factors.

The housing market and mortgage industry may not be as messy as it was in 2008 and 2009, but it’s still messy.  TARP, HAMP and other government policies and programs may have stabilized the banking system and the financial markets, but the financial situation of many homeowners hasn’t improved much in the past five years… and for many, it’s gotten worse.

As this article cites, Zillow estimates approximately 16 million (one-third of all U.S. homeowners) owe more than their homes are worth (a.k.a. underwater).   It’s quite discouraging to think that after years of slugging through this challenging economy, you might be further behind today than you were five years ago.  Some areas of the country have definitely been hit much harder than others, but on a national basis, if you have positive equity in your house, one of your neighbors does not.  In Las Vegas, where I live, even though thousands of people have lost their homes to foreclosure and values have decreased by approximately 50% from the peak, a whopping seven out of ten homeowners are still underwater.

There are significant economic implications for having so many homes underwater.  It impacts people’s ability to relocate, puts them in a perilous financial position if their income decreases, limits their ability to refinance, and pares back their spending.  However, I think the most significant factor is the psychological effect it has on their outlook about the economy, the nation and their future.

For many people, their homes represent a significant portion of their wealth.  They may have spent years saving up for a downpayment or building the equity in their home, and it’s frustrating to see it wiped out in a matter of months.  Granted there were some people who bought homes they shouldn’t have, took out mortgages they couldn’t afford or treated their home like a personal piggy bank.  However, for millions of Americans, they simply bought at the wrong time and their homes lost value through no fault of their own.

The psychological effects of the mortgage mess should not be underestimated.  Owning a home is considered to be part of the American Dream.  It’s one of the reasons home ownership is much higher in the U.S. than in many other industrialized nations.  Sadly, the dream of millions of Americans turned into a nightmare.  Consequently, it’s only logical for people to feel apprehensive and fearful of the economy and the future, when something they thought was a sure thing (owning their home), turned out to be much more uncertain than they could have imagined.  Furthermore, home ownership is a very personal matter.  It’s unlike any other investment, because it’s the place where your family connects and memories are made.

Unlike the empty promises politicians often make, I won’t say there is an easy solution to the mess, nor do I think it’s likely to get cleaned up any time soon.  If there were an easy solution, it would have already been done by now.  Therefore, I think it’s going to be a long and arduous process to reduce the number of homeowners who are underwater.

Consequently, I don’t think we’ll see a resurgence in optimism about the economy, until the number of underwater homes is dramatically reduced.  It’s hard to feel positive about the future when you feel insecure or afraid of losing the place where you live and raise your family.

Can credit card debt management help you to save dollars?

People in this part of the world are used to using credit cards rather than cash for their day-to-day expenses. The proportion of credit use is far more than their retirement savings. Credit cards have given them immense portability and convenience to make frequent purchases. However, this has given rise to several financial diseases which is affecting the fragile US economy. One of the major setbacks is the accumulation of credit card debt. This makes it imperative for the people to know the ways of credit card debt management to avoid getting into a financially sticky situation.

The ways of credit card management

Here are few methods of reduce credit card debt as well as save dollars:

  1. Transfer your credit card balances – This means transferring all your multiple credit card balances into a zero interest credit card. This may be for a year or so as offered by the credit card company. This creates a great opportunity to clear out all your outstanding bills within the promotional period. In this process, you’ll be paying for the principal balance and not for the interest. However, there is a transfer fee for this procedure which hovers around 3-5% of the balance amount. By this method, you’ll save a lot of money even after paying the transfer fee.
  1. Create a budget: Start developing the habit of spending less. Vow to start living a frugal life. This is because the more you spend on useless things, the less you save. Therefore, to fight back such irresponsible behavior, plan a budget that will be comfortable for you to follow. Keep in mind that this budget should not become a burden for you; instead it should motivate you to spend smartly and save money for the rainy day. Use those savings towards debt repayment and you’ll see a remarkable decrease in the number of outstanding bills.
  1. Lower your interest rates: This is one of the most effective steps in the credit card debt management plan. Be vigilant and do your market research to learn about the recent market offers which various creditors are making. After a getting a thorough knowledge of the market offers, contact your current creditors. Request them to lower your card’s interest rate. The creditors will welcome this sort of gesture from you and will readily oblige. If you’ve been a good customer who has been punctual in making the payments, then the creditors will surely consider your request.

During the negotiation phase with your creditors, tell them that you are considering balance transfer as an alternative to lowering the interest rate. This will give them the necessary nudge to accept your terms.

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This article was written by Grace Ruskin.  Grace is a financial writer and is associated with DebtCC Community.

Tax Tip: Mortgage Interest Deduction

If you have a mortgage on your personal residence, you’re probably well aware of the mortgage interest deduction, but like many tax provisions, a simple rule can be complex.  There are many factors involving the deductibility of mortgage interest. 

Generally, you are able to deduct the interest associated with $1 million of acquisition indebtedness and $100,000 of home equity debt.  The interest can relate to your principal residence (as defined) and one other residence you select. 

Some of the requirements for deducting the interest associated with acquisition indebtedness are as follows.

  • Acquisition debt is associated with acquiring, constructing or substantially improving a qualified residence.
  • The debt must be secured by the residence.  Not a problem if you borrowed money from a financial institution, since they will definitely secure their mortgage.  However, if you borrowed money from a family member, your loan document may not state that the loan is secured by the property.
  • You must own the property on the debt you are paying and must personally make the payments. For example, if parents pay the mortgage for their children, the interest isn’t deductible by either of them.

The following are some of the rules related to deducting interest on a home equity loan.

  • The home equity loan can’t exceed the equity in your house.  You generally can’t borrow more than the value of your home, but this could be problematic given the recent decline in real estate prices.
  • The proceeds from a home equity can be used for any purpose, except to purchase tax-exempt securities. 
  • Interest associated with proceeds used for purposes other than for a residence may be subject to the alternative minimum tax.

Mortgage points are generally deductible when paid for an initial loan to purchase a property.  Points paid upon the refinance of a mortgage must be amortized over the life of the new loan.

The IRS is very strict in apply the $1 million acquisition and $100,000 home equity debt limits.  However, the Service issued a ruling in 2009 in which they stated that acquisition indebtedness in excess of $1 million to acquire, construct or substantially improve a residence could be considered home equity interest.  Thus, taxpayers could deduct interest on $1.1 million of acquisition indebtedness without having to take out a separate home equity loan.

As you can see, a simple deduction has rather complex requirements.  If you have an unusual situation or are unclear about the tax rules, you should consult a tax professional.  A mortgage interest deduction can drastically reduce your tax bill, but it can also be quite costly if your deduction is disallowed.

Controlling Economic Growth with the Federal Reserve Discount Rate

The Federal Reserve (the Fed) is charged with managing the U.S. money supply and keeping inflation in check.  Increasing the money supply (i.e., printing money) is intended to spur economic growth.  Additional money is supposed to make it less expensive to borrow, thereby encouraging investment and growth. It also devalues the dollar against other currencies, which should increase exports by making American goods less expensive to buy internationally.

The Conference Board includes the Federal Reserve money supply as part of its composite index of leading economic indicators.  Bankers, economists, currency traders and exporters are particularly tuned into the supply of money in the financial system.    

The discount rate is another primary tool the Fed utilizes to achieve its objectives.  The discount rate is the interest rate the Fed charges other banks to borrow from it. 

If banks are in the business of lending money, why are they borrowing from the Fed?  It’s called leverage.  Being able to borrow money from the Fed allows banks to leverage their deposits and loans.  Banks only keep a fraction of the money deposited to them on hand.  The rest is loaned out.  However, if you want your money, they have to be able to pay you when you to withdraw it.  The ability to borrow from the Fed allows banks the ability to keep fewer reserves and lend more money. Consequently, the discount rate affects the interest rate banks charge you to borrow money.

In general, the Fed increases the discount rate when the economy is doing well.  Raising the interest rate slows growth, which is intended to keep inflation in check.  Furthermore, in good economic times, people don’t need as much of an incentive to take risks or borrow money and are willing to pay a higher interest rate to access capital.  Conversely, in recessionary times, the Fed will reduce the discount rate to lower lending rates and spur economic growth. 

If you study the history of the Fed discount rate, you’ll see increases during periods of economic prosperity and rate cuts during recessions.  The size and timing of the rate cuts or increases are indications of the economic conditions. 

This is evidenced in the Fed discount rate over the past two years. The Fed dropped the rate seven times in 2008, reducing the rate by 0.75% three times.  The rate was 0.5% at the end of 2008, and hasn’t been that low in over 30 years.  This is an indication of the severity of the current recession, as if you needed another sign.

The Fed raised the rate 0.25% in February 2010, on signs the economy was strengthening.  However, the Fed has indicated that it doesn’t expect any rate increases for an extended period of time.  With rumblings that the recovery is slowing, the Fed may be pushed to lower the rate once again, but it doesn’t have much further it can go.

You don’t have to wear yourself out trying to understand monetary policy, money supply and inflation factors.  If you want to get a quick synopsis of the Fed’s current view on the economy, just watch their action on the discount rate.  No change means you can expect things to stay the same for a while.  A reduction is a sign of trouble, and an increase is an indication that things are getting better.

With the Fed saying that they expect to hold the discount rate static for an extended period of time, you can expect the economy to continue to slog along.  It may not be great, but hopefully it doesn’t get worse.

An Unemployment Emergency?

In the past two days, Congress passed and President Obama signed a bill extending unemployment benefits.  The bill retroactively reinstated benefits which expired on June 1, and it extends them through November; just days after the 2010 mid-term elections.  Coincidence? No. Politics? Yes.

The legislation started out costing over $100 billion and got trimmed to $34 billion after eliminating the extension of certain tax benefits and additional money to help the states. The major political battle that’s been brewing for the past 8 weeks has focused on how to pay for the extension of benefits.  The proponents wanted to fund it with additional deficit spending, and the opponents to the legislation wanted to reallocate money from the $787 billion Stimulus Bill.  In the end, the proponents won out.

Aside from the question of how long should the government continue to extend benefits, the issue of how to pay for the benefits is a legitimate debate.   Although it’s political, it’s bigger than politics.

In February 2010, Congress passed a statutory Paygo rule.  Basically, it’s a self-imposed rule that Congress must pay for all future discretionary spending of the government (which only accounts for about 35% of all spending).  However, they gave themselves an out.  Emergency spending is exempt from the Paygo requirement.  Thus, the President and his supporters considered extending the benefits an emergency.  I disagree.

 An emergency is a sudden and unexpected situation or event.  Terrorist attacks, natural disasters and accidents are emergencies.  The unemployment situation when President Obama was inaugurated could have been considered an emergency, but that was 18 months ago.  The economic recovery remains very tenuous, but I don’t think we’re in a state of emergency. 

My opposition is not over the extension of the benefits.  My objection is Congress’ propensity of ignoring and rewriting laws, rules and regulations to avoid difficult decisions.  It is much easier to classify the extension of unemployment as an emergency, rather than make a politically unpopular choice of raising revenue or reducing other spending.  As a result, the red ink of the US government continues to flow unabated like the oil from an uncapped Macondo well.

In the big picture, $30 billion is a drop in the bucket.  We’ll rack up that much debt in the next 10 days.  So what’s the big deal then?  In principle, I agree with the controversial position Sen. Bunning took when he held up a similar extension bill back in February.  If Congress can’t find a way to pay for an additional $34 billion of spending, they will never make the tough decisions necessary to balance the budget.

I think Congress was right to extend the benefits, but I also think they should have found a way to pay for it.