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| Mortgage Management - Essential Refinance Considerations |
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Wednesday, September 5, 2007
Your mortgage is probably the single largest financial obligation that you will have in your life. The investment that you have in your home can have great long term value, but on a month by month basis it represents a significant expense. The math for most people is simple, the more you pay on your mortgage, the less you have to spend on other things. To underline this point it might be of interest to note that in 1980 the average person spent 25% of their gross monthly income on housing expenses. By 2005 that percentage had risen to over 43%. This is not really a surprise. We are all aware that home prices have risen significantly during this period of time. Income levels have not kept up with home prices and as a result home buyers are finding more of their paycheck going towards their mortgage payment. Florida mortgage holders have acutely felt the impact as home prices in recent years have rivaled those of California. Your mortgage may consume more or less than the average 43% of your gross monthly income, but it is probably safe to say that it deserves to be intelligently managed. Mortgage Management I’ve been a licensed Florida mortgage broker since 1989. My company Power Mortgage Corp. a Florida Mortgage Company is also licensed in Georgia, Massachusetts, and Virginia. Over the years I have originated, refinanced, and analyzed countless mortgages. I’m always happy when we can help a customer make an intelligent decision about their mortgage. Active, regular mortgage management can make a big difference in your life. The right choices will save you money. Sometimes lots of money. To Refinance or Not to Refinance Active mortgage management does not always mean taking action. Active mortgage management means an intelligent periodic review of available options. Call your friendly mortgage broker from time to time! We like to hear from you. We will always take the time to help you understand your options. And always make sure that you know all of the costs involved. Request a Good Faith Estimate. Make sure that your mortgage broker includes all third party charges and statutory costs along with the lender fees. It is equally important to consider your personal goals; how long will be in the home? Do you plan to retire soon? What type of personal saving plans do you have? What is your aversion to risk? Is an adjustable rate mortgage suitable? Fixed or Adjustable Fixed rate mortgages are pretty easy to understand. Adjustable rate mortgages on the other hand can be surprisingly complex. And there are literally thousands of variations of adjustable rate mortgages. Over the last five years negative amortization adjustable rate mortgages have become popular. Florida mortgage borrowers have embraced these programs for the advertised low payment rates. But these loans are complex; I believe that very few people that get this type of mortgage understand them. I also believe that there are mortgage brokers actively selling these programs that do not understand them. Please take your time. Ask lots of questions. Take notes. Ask more questions. Make sure you understand the index, the margin, the adjustment period for both the note and the payment. It wouldn’t hurt to look at the worst case scenario. Can you live with it? If your mortgage broker can’t answer your questions find a new mortgage broker. Your financial life may depend on it. How About a 15 Year Fixed? There was a time when the interest rate on a 15 year fixed rate mortgage was consistently and significantly lower than the rate on a 30 year fixed rate mortgage. Between June of 2004 and June of 2006 the Federal Reserve increased the Federal Funds rate 17 times. This rate directly impacts all short term interest rates such as the Prime Rate. During the same period of time the long term rates remained more or less steady. The net effect was to close the gap between rates on shorter term mortgages like the 15 year fixed and longer term mortgages like the 30 year fixed. At the time of this writing the rates on these two loan products happen to be exactly the same. But this should not take the 15 year fixed rate mortgage out of contention. For many people it is an excellent option. And it can still save lots of money. For example, the payment on a 30 year fixed rate mortgage for $100,000 at 6% is $599.55. The payment on a 15 year fixed rate mortgage for $100,000 at 6% is $843.85. That is an extra $244.30 per month on the 15 year mortgage. But consider that the total payments made on the 30 year loan would be $215,838, versus $151,893 on the 15 year mortgage. By choosing the 15 year mortgage you would save $63,945. And you get to stop making mortgage payment in 15 years! Interest Only Given the high cost of homes it is no surprise that interest only programs have become so popular. Florida mortgage customers have flocked to these programs to make increasingly expensive homes affordable. An interest only mortgage can be appropriate if your sole concern is cash flow. During the interest only period you will not be paying any principle off. There are many types of interest only mortgage programs. The majority of interest only mortgage programs are “fixed period adjustable rate mortgages”. This means that they are fixed for a limited period of time; typically 3, 5, 7, or 10 years. The interest only period usually corresponds to the fixed rate period. Once the fixed rate period ends the mortgage becomes adjustable. A new version of the interest only mortgage worth considering is the 30 year fixed rate mortgage with a 10 year interest only period. You get the benefits of the low interest only payment for 10 years - but with no adjustable rate risk waiting for you at the end of the interest only period. It’s Your Money How often do you balance your checkbook, get a physical exam, go to the dentist? Your mortgage can have a huge impact on the quality of your life. Think of your mortgage from time to time. Call your friendly mortgage broker. Have a chat. Ask questions. It’s your money. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Do I Want To Sell This Stock? The market place has changed, option premiums are not quite as expensive as they were even six months ago. This might seem like a good time to buy options, but the stock needs to move a lot in order to make money on the option premium. For anyone reading this report who already owns stock, especially stock they want to keep, then writing a covered call provides them an additional way to add cash to their account—to build up their asset base. When you buy an option, you have a 1 in 3 chance of making money. When you sell a option you have a 2 in 3 chance of making money. If the stock goes up, you make money. If the stock stays the same, you make money. Even if the stock goes down, you can still make a little bit of money. In short, it is a cash flow strategy to help support your family and pay your bills. It is a strategy that can be mastered. To “write” in the stock market means to sell. “Covered,” means you actually own the stock. A call is an option. We are going to sell the call option against our stock position to generate cash into our account. For example, you have 400 shares of a stock at around $50 per share. Originally you purchased this stock at $45. You find the $55 call for November is going for $2.50. You have 400 shares, so you could sell 4 contracts at $250 each, which would be $1000. You have given someone the right to buy your stock from you at $55; you have been paid $1000 to give them that right. That $1000 is yours whether your stock goes up, stays the same, or goes down. If the stock moves above $55 on or before the expiration date, you could have this stock purchased away from you. You purchased the 400 shares of stock for $45, now you are selling it for $55. That would be a $10 profit per share multiplied by your 400 shares. This would be an additional $4000... One important question is to ask yourself “do I want to sell this stock?” If you want to sell the stock, then sell the $50 calls for $4.50. That would generate $1800 into your account, and you would have a higher likelihood of being called out at the $50 strike price. If you really want to sell the stock, you could sell the $45 calls—that would generate $7 each, or $2800. Now as long as the stock stays above $45, you will have it taken away from you electronically on or around the weekend after the 3rd Friday of November. If you do not want to sell the stock, then sell the higher strike price, generate a smaller premium, but then have a lesser likelihood that the stock will be taken away from you. You still have the risk of the stock going down in value. You may want to consider stop-loss orders on your stock so that if it drops, you are out of the stock, then you would have to wind out of the call position. It can be as easy as 1-2-3. 1) Keep your stock purchases in 100 share increments. 2) Ask your stockbroker about the different strike prices and different months, the further out, more premium, but then the stock is tied up longer. 3) Sell the option contracts against your stock—that money will be in your account in one day, which you can use for anything you want. THIS CAN BE DONE MONTHLY! Larry Potter is a recognized authority on the subject of trading. For a FREE report on HOW TO TRADE FAST from Stocks2Watch®, go here: Free Report:Trade Fast Didn’t Get An Expected 1099-MISC Form? If you are an independent contractor, you should receive a 1099-MISC form from businesses that paid you more than $600 for your services. Ah, but what if you don’t receive one? The 1099-MISC form is misunderstood by most people. It is not a tax return per se. Instead, it is what is known as an information return. The IRS essentially uses it to track how much revenue an independent contractor pulls in from clients. A party that pays $600 or more to an independent contractor must file one of the forms with the IRS. There are exceptions to this $600 figure, but this is the general rule. A person issuing the form must send it out to the contractor by the end of the day on January 31st. They then must file the same form with the IRS by the end of February. If you receive a 1099-MISC form, you don’t need to do anything with it other than check to make sure the payments reported are accurate. Ah, but what if you do not receive the form? First off, many people forget to file the form. Since it is an information return, they just don’t get around to it or it slips their mind. There is a penalty for failure to file the form with contractors and the IRS, but it is under $100. In short, not enough of a fine to motivate people. If you failed to receive the form, the party in question is probably not “up to” anything. Furthermore, you do NOT file the 1099-MISC forms you receive with your tax returns, so it is not a critical problem for your own tax return preparation. If you fail to receive a 1099-MISC form, you still have to report the revenue earned from that business. The fact it was not reported to the IRS does not mean you get a free break. Sorry. You are responsible for reporting all of your revenues regardless of where they came from and whether they were reported to the IRS or not by a third party. You should be able to look at your books and determine how much you were paid from each customer. Ultimately, the 1099-MISC form stresses out more people than it should. It is a necessary form, but the IRS is not going to be breaking down anyone’s door for 1099-MISC problems. If you didn’t get all the forms you were expecting, just figure out your total revenues and go from there. Richard A. Chapo is with BusinessTaxRecovery.com - providing free tax tips. |
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