Deduction of Interest Paid and Points paid at closing

I have been getting calls this week asking about whether points paid at closing, which are shown on the settlement statement at closing, are able to be deducted as interest paid on your long form.

YES!

Deduct your points paid with or with out a form 1098 from Primary Residential Mortgage or from the Lender you are making your payment to. Keep a copy of your settlement statements with your tax papers in case of an IRS audit. As always, I advise you to double check with your tax advisor for the final word on this.

If you are at a point you would like to give up on the idea of doing your own taxes, let me refer you to my tax advisor. Her name is Lorrie Rumpsa and can be reached at 801-621-8128 for an appointment to schedule your tax review. You will LOVE her!

Thanks for the calls and please let me know what other tax questions you have and I will research it for you!

Return on Investment Calculations

The calculation appears simple enough:
Return on investment equals what has been
earned divided by what has been invested.
If an investor puts $1,000 in a portfolio of
stocks that appreciates to $1,100 and pays
$50 in dividends, the portfolio would have
returned 15 percent ($150/$1,000).

However, it is not that simple. To
make the percentages meaningful,
investors need to consider
a few important variables.
For one, a $150 return
on a $1,000 investment in
one year is better than a
$150 return on a $1,000
investment over two years.
Indeed, the first outcome
produces a 15 percent annualized return,
while the second produces a 7.24 percent
annualized return. Annualized returns
enable direct comparisons.

Fees also matter. Two investors each
earn 15 percent on their $1,000 investment.
One investor is charged 1 percent of the
portfolio’s value at year’s end, while the
other is charged 2 percent. After fees are
subtracted, the first investor posts a 13.8
percent return on investment, the second
investor posts a 12.7 percent return.

Leverage, or debt, is another important
variable. Consider two $200,000 rental
properties: One investor pays the full price
in cash while another investor borrows 80
percent of the property’s value ($160,000) at
6.5 percent on an interest-only loan. After
one year, the property generates $15,000
in operating income. The first investor
earns 7.5 percent ($15,000/$200,000) on
his invested capital. The second investor
earns 11.5 percent [($15,000-$10,400 in
interest payments)/$40,000] on his invested
capital.

The variable of leverage,
in turn, leads to the variable of
risk. Some investments are
riskier (offer a greater
chance of losing money)
than others. A leveraged
investment is riskier
than a non-leveraged
investment; bonds are
riskier than stocks; futures
contracts are riskier than
stocks.

Bottom line: An 11.5 percent return
on a leveraged investment isn’t necessarily
better than a 7.5 percent return on an
unleveraged one.

Returns on investment are important
considerations, to be sure, but the variables
that contributed to those returns are just as
important.

MBS Purchase Update

As I have mentioned in previous Blog posts recently, the Government’s Program to purchase Mortgage Backed Securities (MBS) is nearing the end. This program began in January 2009 as part of the economic recovery act of 2009 and was designed (and has been successfully implemented) to hold down mortgage interest rates.

This week’s purchases of MBS by the Government was $12 Billion, bringing the total to $1.173 Trillion since January, 2009, and leaving $77 Billion to be spent over the next 8 weeks. Leaving an average of $9.62 Billion per week to be spent, I have warned, as have other financial experts, that mortgage rates are going to begin increasing.

This latest week of increased refinance activity (up 21% Nationally) may be an indication of the reality of our situation becoming clear to homeowners who have not yet taken advantage of lower rates. A recent Government report (in a previous Blog Post), indicated that just 30% of eligible homeowners who could benefit from the lower interest rates we are enjoying, have actually taken the steps to refinance.

Also, homeowners wanting to sell their current homes in order to take advantage of the $6500 tax credit scheduled to expire on April 30, 2010 has also dramatically risen recently (National Association of Realtors article I read yesterday).

And finally, the first time homebuyer. What a shining star in the market place this past 12 months! With over 42% of all homes purchased in 2009 attributed to first time home buyer’s, and why shouldn’t these first time home buyer’s take advantage of a “once in a lifetime” benefit?!

First Time Home buyer's are rushing to put homes under contract before April 30^th (and close before 6/30/10) to take advantage of the $8,000 tax credit!

This is a wonderful time in Mortgage rate history! Please call me if I can help with any Purchase or Refinance Questions you may have!

What do I do to my Home before I list it for sale?

Five Things You Must Do
Before You List Your Home

While sales are showing signs of picking
up around the country, it is still crucial that
you do everything you can to make your
home as attractive as possible to potential
buyers before you list it for sale.

1. Clean everything. A clean home gives
buyers the impression that your property
has been well cared for. (Call me if you need
help in this area, I have several professionals
who I can refer you to!)

2. Repair everything. If you have neglected
small things such as burned out light
bulbs, broken closet doors or chirping fire
alarm batteries, buyers will wonder what
bigger items you may have neglected (such
as furnace repair, roof replacement or
foundation work). (For professional Electrican,
Handyman, or Plumber, call me for phone
numbers for those I trust and would refer to you!)

3. Make your home a clutter-free zone.
Removing all clutter is vital. It can make
your home appear larger and give buyers a
sense of space and order. (Rent a storage unit
for $50 per month and get $5,000 more sales
price on your home!)

4. Fantastic curb appeal is another must have.
You want buyers to be bowled over
the moment they pull up to the house. In
this competitive market, it is not enough
to assume buyers will fall in love with
the inside; the outside of your home must
impress them as well. (Interior Design
Specialist can help Stage your homes interior,
and a Landscape architect can help with the
exterior curb appeal-Call me for names and
phone numbers for professionals I would
recommend!)

5. Hire a professional stager to ensure your
home has its best foot forward. A stager
can show you strategic ways to set up
your home including furniture placement,
color and balance that will elicit certain
emotions in your buyers and help them see
just how great your house is.

Consult your Realtor for more insight into
what you can do to ensure a quick sale at
the best possible price.

Thought for the day:

Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1.
~Warren Buffett