Personal Finance Blog By MoneyRates - December 2008
December 23, 2008
(1) Citigroup $45 billion
December 19, 2008
Freddie Mac reported that the average rates on fixed mortgages fell to 5.19% on a 30-year loan and 4.92% on a 15-year loan which marks the lowest level since the Freddie Mac lender surveys began in the early 1970s. The ability to refinance a mortgage loan at lower rates is better for homeowners who have a good credit score and equity in their houses after the credit market for borrowers with poor-to-average credit scores or little home equity has been decimated. The decrease in mortgage applications which are funded by lenders has fallen to ten-year lows and is not expected to improve. Credit analysts advise that homeowners with a strained credit score or negative equity in their houses may need to wait another six months to a year, before market conditions open again and allow more widespread refinancing.
The Federal Reserve and Treasury Department have pledged strong support to the mortgage industry which should help keep mortgage rates below 6% for some time. Some analysts predict that the 30-year fixed loan average could go as low as 4.50% in 2009 or 2010 as the government continues to offer support by buying mortgage-backed securities. Homeowners who want to compare mortgage rates quickly and easily and visit the online tools at GuidetoLenders.com.
Posted in: Mortgage
December 16, 2008
The Federal Reserve delivered another strong shot of adrenaline to the sagging U.S. economy by reducing the federal funds rate to an all-time low of 0.25%. The benchmark rate used by banks for lending is likely to stay low for quite a while according to the language in the released statement from the policy-making committee. Good news for consumers is that major banks will immediately reset their own prime lending rate to 3.25% which will impact credit cards, student loans, variable mortgages, and home equity lines of credit. While credit markets remain tight, those with superior credit scores will reap the biggest benefits as their prime + 1% rate now stands at 4.25%.
December 9, 2008
The historic loss in jobs over the last 90 days has had an unfortunate impact for thousands (and perhaps millions) of Americans who have been forced to withdraw funds from their Individual Retirement Accounts (IRA) in order to make ends meet. While in some cases the withdrawals may be unavoidable, financial experts across the country have been advising that IRA accounts should be one of the last places to go for funds for the following reasons:
(1) Distributions are taxed at ordinary Federal and State income tax rates
(2) For accountholders under the age of 59 1/2 a 10% penalty applies
(3) With stock market indexes down over 40% for the year - the market timing is less than ideal for selling - and capital gain losses cannot be carried over on IRA accounts
(4) The prime lending rate is at a very low 4% making many conventional loans more affordable
Americans who have no where else to go for funds do have the option of taking out a loan from their IRA account as long as the funds go back into the IRA or a different IRA in 60 days. The consensus amongst tax planners for those considering this type of short-term IRA loan has been to wait to make the transfer until after January 1, 2009, so that any part of the loan that is not ultimately put back into an IRA within 60 days will not be taxable until 2010.
The tax code does provide a way to avoid the 10% penalty for early withdrawals. In Section 72(t) of the Internal Revenue Code the law states that if you elect to receive "a series of substantially equal periodic payments" that are based on your life expectancy then the taxpayer will not have to pay the extra 10%. However the major problem with Section 72 withdrawals are that they only allow a small percentage (2% to 3% depending upon your age) of the the total assets in the IRA to be withdrawn in a year. The IRA account would have to hold significant assets to benefit the taxpayer in the current year with their withdrawal.
More information about the IRA withdrawal rules are available at IRS.gov.
December 2, 2008
One of the biggest concerns for parents in the United States is affording the cost of higher education. President-Elect Obama has highlighted on his website his plan to make loans available for parents. The plan has two elements:
(1) Create the American Opportunity Tax Credit: President Obama will make college affordable for all Americans by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students. Recipients of the credit will be required to conduct 100 hours of community service.
(2) Simplify the Application Process for Financial Aid: President Obama will streamline the financial aid process by eliminating the current federal financial aid application and enabling families to apply simply by checking a box on their tax form, authorizing their tax information to be used, and eliminating the need for a separate application.
Parents who are combining loans from various sources can find an excellent resource on Virgin Money's website called "The Lender Blender". This interactive tool allows the user to compare rates on various loan sources with average rates for each type of loan which can be adjusted.
Family or Friend Loans (4%)
Private Student Loans (11%)
Credit Cards (12%)
Home Equity Loans (5.70%)
Federal PLUS Loan (8.50%)
Other Loans (5%)
The Lender Blender will compute the amount of savings by using any loan which charges an interest rate below that of the average private student loan.