Mortgage Rate News

Most people understand that they can deduct their mortgage interest from their taxes each year. But you may not be aware of the helpful tax nuggets in the $700 billion bailout package that was recently passed. Additionally, some previous stimulus packages have also include some favorable tax rules. Here are some more ways that your home can save you money on your taxes:

• Mortgage debt forgiveness. This really applies for those who have received in these tough financial times. If you have done a short sell, a loan modification or had some other means of mortgage debt forgiveness, you do not have to pay taxes. It used to be viewed as taxable income, but right now it’s not.
• Property tax deduction. The 2008 deduction has been extended to 2009, and home owners that do not itemize their deductions get up to $1,000 for joint filers, and $500 for single filers, on top of the standard deduction.
• First time homebuyer credit. Up to $7,500 tax credit if you are a first time hoembuyer this year. Be aware, though, that these is a process for paying it back. You don’t get to keep that money.
• Energy efficiency. If you make home improvements that increase your house’s energy efficiency, you can get a tax credit of up to $500. However, it is a one time thing, so it if you’ve already taken it, you can’t take it again.

Of course, it is best to consult with a qualified tax adviser and/or an accountant before making your decision. A good tax adviser can help you figure out the best way to maximize your deductions and credits. There are some things out there for you to take advantage of — you just need to know how to use them. And in many cases, it’s worth the $200 to have a professional prepare your taxes.

When trying to get out of debt, it is very important to consider what type of debt you have. Not all debt is created equal, and you should pay off the most detrimental debts first. This means that, by and large, your mortgage should be the last debt you actively try to pay off.

Good debt v. bad debt

Mortgage debt falls into two categories that make it more practical to pay it off last:

1. “Good” debt.
2. Low interest.

When deciding to aggressively pay off your debt, you need to order your debts according to advantage to you. First, you need to determine whether the debt is “good” or “bad.” Generally, “good” debt is debt that offers you some sort of long term benefit, a type of return, or a chance to recoup some of the expense. Of course, you should not overextend yourself with this type of debt, and you should borrow as little as possible. “Good” debt includes:

• Mortgage
• Education
• Car

Bad debt is debt that you get mainly to fulfill some immediate cash flow problem, or that you use to buy consumer items of little lasting value. Bad debt includes:

• Credit cards
• Payday and title loans
• Department store credit and rent-to-own
• Some home equity loan and line of credit arrangements

When ordering your debt, the mortgage, which is the “best” type of debt, should be paid off last. The other debts should be paid off first, helping you improve your credit score.

Interest rate

Your mortgage likely has the lowest interest rate. Even if it doesn’t, the interest rate is tax advantaged, so you are gaining some benefit. Other debts should be ordered according to the highest interest rate. That debt should be paid off first, and then you can move down the list.

The best way to pay off debt is to have a plan. It will help you keep on track — and you can arrange payment so that things work out in a way that is more advantageous to you.

Tags: home equity loan, good debt, home mortgage loan, mortgage,
pay mortgage, credit card, debt

Last night, Barack Obama won an historic election for U.S. president. Of course, now the real work begins. While it is unlikely that everything Obama says he would like to do will be possible, there are some things that might get done. And some of them are likely to be in the area of fighting foreclosure.

President-elect Barack Obama and the foreclosure crisis

Obama has been offering his thoughts and ideas on fighting the foreclosure crisis for months now. As part of CNN Money’s look at what Obama wants to do, the highlights of Obama’s foreclosure prevention plan are explained.

• Direct refinancing of troubled homeowners to loans that will be insured by the Federal Housing Administration.
• If homeowners in danger of foreclosure are “acting in good faith,” financial institutions that want to participate in the Treasury program for troubled asset relief have to put a 90-day moratorium on the foreclosure. The idea is to give the homeowners time to find a solution.
• For homeowners who do not itemize their taxes, a 10% tax credit would be offered.
• Start a fund for victims of predatory loans, to the tune of $10 billion.
• Allow bankruptcy judges to adjust the principal on mortgages.

Some of these ideas, I think, are good ones. I like the idea of a moratorium, since those homeowners acting in good faith are likely to find some solution to the problem if they have a little more time (although in some cases, nothing will prevent foreclosure). I also like the idea of helping individual homeowners refinance, and the tax credit idea is a nice tough.

However, I am a little wary of the $10 billion fund. One would think that the other solutions would be enough. And for the bankruptcy judge thing, I’m entirely up in the air. Part of me thinks it’s a good idea, and the other part of me wants to offer a warning. It could be good for those who are legitimately in trouble, but sometimes judges get a little carried away.

What do you think of Obama’s efforts to fight foreclosure?

Tags: Barack Obama, Barack Obama plan, home mortgage loan, fight foreclosure,
president Barack Obama, mortgage principal, refinancing