An update on kitchen remodeling reveals you could be spending a lot more and getting a lot less when you do-over your home's social center.
Consumer Reports "Kitchen-Planning Guide" now includes a new feature "Great Kitchens For Less," a dissertation on spending less and getting more when you remodel or just swap out old appliances with new.
With findings and recommendations based on independent laboratory tests, pricing comparisons and cost analyses, the Consumers Union publication says the hype on stuff you can buy for the kitchen is often just that.
It's not surprising kitchens get the hard sell.
Kitchens are the social gathering spot for the family and guests and new technology is turning it into the home's command center.
That's not all.
Remodeling kitchens is a value added proposition because a large portion, if not all and sometimes more of the remodeling cost becomes added home value.
Finally, upgrading major appliances today comes with both an energy conservation boost and convenience boom.
"Whether you're updating your appliances or planning a full remodel, seeing past the hype can be tough when everything looks so good," the magazine reports in an overview that names names and includes an everything-you-wanted-to-know approach to kitchen remodeling and financing, as well as the appliances, furniture, materials and accessories that go into a job, large or small.
Notable in the exhaustive report is the potential for big money savings in the "10 Most-Hyped Products And What To Buy Instead" side report.
"Mistakes can be costly as well as disappointing, because the most loudly hawked products are often the most expensive," according to Consumer Reports.
Here are some examples:
• Pro-style ranges. Commercial ranges promising a professional look, feel and performance come with a professional $4,000 price tag, but performance no better than less-expensive conventional ranges. Turn it on. Cook. If you need to keep up with the Joneses, commercial-looking ranges from mainstream manufacturers perform just as well for thousands less.
• Steam ovens and ranges. Consumer Reports found that oven makers claiming "super-heated steam cooking melts away fat" were thin on results. Free exercise is a better deal than the $1,000 cost for the ovens.
• Multimedia fridges. In one of the latest examples of technology attempting to adjust your habits -- when it should be helping you perform them more efficiently -- refrigerators with built-in TVs and calendars are still just refrigerators. They cool and freeze food. Post a to-do list and buy an under-the-cabinet flip down or small counter-top flat panel TV. Save thousands.
• Pricey faucets and sinks. Five-hundred dollar faucets reveal no performance superiority over lower priced faucets in chrome or with physical vapor deposition finishes. And thick or thin, all stainless sinks resist dents, stains and scratches similarly. It's all steel, or a steal, depending on how you look at it.
• Trendy counters. Concrete is fragile and susceptible to scratches, chips and hairline cracks and needs periodic resealing. Who needs another kitchen chore? Limestone, in wear tests, revealed scratches, stains and dings. Granite or quartz are a better deal.
• "Green" flooring. Bamboo, cork, linoleum, all considered renewable alternatives, don't hold up as well to the usual spills, scratches, dropped plates, and sunlight and may need to be, well, renewed sooner than solid wood floors and plastic laminate and vinyl. The latter two were toughest overall in tests, cost less and demand less care.
• Big-box shopping. One-stop shopping for remodeling jobs at the big warehouse home improvement centers wasn't impressive as an overall solution for design help, installation services, product quality, selection, even price, according to Consumer Reports. Like any major purchase, a kitchen remodel is a shop-around job.
"For instance, Costco was tops overall for major appliances, but it had the worst selection. Check each retailer's return policies before you buy. Also consider local independent stores and personal references as highly as any preconceived notions about price, quality, and convenience," Consumer Report advises.
Thursday, August 2, 2007
Sunday, July 22, 2007
Are You Leaving a Tax Deduction on the Table?
If you refinanced your home recently, you're not alone. According to Plunkett Research, approximately $1.1 trillion dollars in mortgage loans was refinanced in the United States last year. But did you remember to take an increased mortgage interest deduction on your tax return if you were entitled to one?
Here's how it works. You are allowed to take a deduction on your personal tax return for mortgage interest you pay on a loan that is secured by either your principal residence or a second home, up to one million dollars in acquisition indebtedness. That means mortgages, lines of credit and home equity loans all qualify, as long as they are secured by your home, and you are the primary borrower, and legally obligated to repay that loan. (This is a mistake I see many people make who are buying a home using a lease-option, or "rent-to-own" method -- until the title of the home is transferred to you, you can't take the mortgage interest deduction.)
What you call your first and second homes can be pretty open to interpretation. Pretty much anything will qualify if it has sleeping, cooking and toilet facilities.
The amount you can deduct depends on your mortgage. If your mortgage is more than $1 million, you can deduct all of the interest you pay on the first million, but you can't deduct any more interest after that. Same goes for home equity loans of more than $100,000. You can deduct all the interest you pay on the first $100,000 of debt, but you can't deduct any remaining interest. As with most things, there are some tax loopholes around that as well. It all has to do with what you do with the money you get from the loan.
If you have an Option ARM (adjustable-rate mortgage), and you have been paying the interest-only option, then theoretically your entire mortgage payment is tax-deductible if it fits under the $1 million cap. Another type of Option ARM featured a "deferred" component, which meant not only could you defer your principal payments, you were also able to defer a portion of the interest due.
However, when it comes to your taxes, taking the deferred option route means your mortgage interest deduction is limited to the interest you actually paid. This makes sense -- after all, why should you get a tax deduction for money you haven't paid out? And you don't lose anything, either. The interest deduction is merely suspended until such time as those extra interest payments are made.
When the Option ARMs began to adjust (and turn into traditional mortgages), many people found that their new mortgage payments were too high and the rush to refinance into lower payments was on. In most cases, a portion of the refinanced loan was also attributable to catching up on all of the unpaid mortgage interest that had accrued to date.
Once you've refinanced and paid off all that accrued interest, your suspended deduction is no longer suspended. So does this mean that the interest is suddenly deductible when you replace it with a new note? Perhaps! As of this moment, the IRS has not yet come up with a strong position one way or the other. Which means if you take this deduction (unless the law changed from the time I wrote this article to the time you read it), you'll most likely get to keep it. As with all tax strategies, but especially brand new ideas like this one, make sure you check in with a tax professional who is clearly versed in the ins and outs of the tax code.
Normally I don't advise my clients to file amended tax returns unless there is a significant missed deduction amount. That's because amendments are processed at the IRS by hand, rather than through the computer, and the more attention you draw to yourself … the more attention you draw to yourself. There is nothing in the Tax Code that says an IRS examiner can't review your entire tax return, and not just the amendment you are making. However, in this case, depending on how much money is on the table, it may be to your best advantage to contact your CPA or tax-return preparer and see if you've got money on the table that would fit better in your pocket.
Keep learning! Visit taxloopholes.com/realestateagents to download a FREE special report each month, or join the TaxLoopholes.com community to keep on top of tax law changes.
Here's how it works. You are allowed to take a deduction on your personal tax return for mortgage interest you pay on a loan that is secured by either your principal residence or a second home, up to one million dollars in acquisition indebtedness. That means mortgages, lines of credit and home equity loans all qualify, as long as they are secured by your home, and you are the primary borrower, and legally obligated to repay that loan. (This is a mistake I see many people make who are buying a home using a lease-option, or "rent-to-own" method -- until the title of the home is transferred to you, you can't take the mortgage interest deduction.)
What you call your first and second homes can be pretty open to interpretation. Pretty much anything will qualify if it has sleeping, cooking and toilet facilities.
The amount you can deduct depends on your mortgage. If your mortgage is more than $1 million, you can deduct all of the interest you pay on the first million, but you can't deduct any more interest after that. Same goes for home equity loans of more than $100,000. You can deduct all the interest you pay on the first $100,000 of debt, but you can't deduct any remaining interest. As with most things, there are some tax loopholes around that as well. It all has to do with what you do with the money you get from the loan.
If you have an Option ARM (adjustable-rate mortgage), and you have been paying the interest-only option, then theoretically your entire mortgage payment is tax-deductible if it fits under the $1 million cap. Another type of Option ARM featured a "deferred" component, which meant not only could you defer your principal payments, you were also able to defer a portion of the interest due.
However, when it comes to your taxes, taking the deferred option route means your mortgage interest deduction is limited to the interest you actually paid. This makes sense -- after all, why should you get a tax deduction for money you haven't paid out? And you don't lose anything, either. The interest deduction is merely suspended until such time as those extra interest payments are made.
When the Option ARMs began to adjust (and turn into traditional mortgages), many people found that their new mortgage payments were too high and the rush to refinance into lower payments was on. In most cases, a portion of the refinanced loan was also attributable to catching up on all of the unpaid mortgage interest that had accrued to date.
Once you've refinanced and paid off all that accrued interest, your suspended deduction is no longer suspended. So does this mean that the interest is suddenly deductible when you replace it with a new note? Perhaps! As of this moment, the IRS has not yet come up with a strong position one way or the other. Which means if you take this deduction (unless the law changed from the time I wrote this article to the time you read it), you'll most likely get to keep it. As with all tax strategies, but especially brand new ideas like this one, make sure you check in with a tax professional who is clearly versed in the ins and outs of the tax code.
Normally I don't advise my clients to file amended tax returns unless there is a significant missed deduction amount. That's because amendments are processed at the IRS by hand, rather than through the computer, and the more attention you draw to yourself … the more attention you draw to yourself. There is nothing in the Tax Code that says an IRS examiner can't review your entire tax return, and not just the amendment you are making. However, in this case, depending on how much money is on the table, it may be to your best advantage to contact your CPA or tax-return preparer and see if you've got money on the table that would fit better in your pocket.
Keep learning! Visit taxloopholes.com/realestateagents to download a FREE special report each month, or join the TaxLoopholes.com community to keep on top of tax law changes.
Tuesday, July 10, 2007
Housing Counsel: Explaining Subordination
Question: What does Subordination mean? We have a first trust and a home equity loan, which we learned is referred to as a HELOC. We applied for a refinance loan with a mortgage lender and were asked if we wanted to payoff the HELOC. When we opted to keep that loan on the books, the loan officer advised that it would have to be subordinated, but that the loan officer would take care of it.
We set up a settlement date, and on the morning of settlement, the lender advised us that the HELOC had not been subordinated, and further that we had to make the arrangements. When we contacted the HELOC lender, we were advised that the new lender had to make the arrangements.
The net result is that we were unable to settle at the loan rate which we had locked in, and had to pay a higher interest rate. The lenders were pointing fingers at each other, and both lenders were blaming the settlement company. We were the victims, who were caught in the middle of this three-ring circus.
What went wrong? Do we have any recourse?
Answer: Yes, since the refinance lender promised you that he would take care of the subordination, that lender breached its commitment and should be forced to honor the original lock-in interest rate.
I suggest that you contact the senior vice-president of the lender, explain the situation and ask them to correct the problem. If the lender (which happens to be a major, national bank) refuses, I would formally complain to the following government agencies: the Attorney General in your state, the Federal Trade Commission, and the Federal Reserve Board.
If you have proof that your lender made this promise to you (such as having a witness present) the fact that it may have been a verbal statement does not mean it is not binding. Oral contracts are enforceable except when real estate matters are involved. But here, we have a mortgage loan case -- and not a real estate issue.
What is subordination? An online dictionary defines this as "to make subject or subservient, or to treat as of less value or importance."
Let's take your situation: your home is worth $400,000, and you have a first trust (mortgage) in the amount of $150,000, and a HELOC in the amount of $100,000. It should be noted that the HELOC is a second trust, which is recorded among the land records in jurisdiction where your property is located.
You want to refinance the first trust, but keep the second in place. Your new lender wants to be in first trust position, so that should you become delinquent on your loan payments, that lender will be able to foreclose and be first in line to get the sales proceeds.
When you refinance, the moneys from the new lender will be used to pay off the original first mortgage. That means that your HELOC -- which was in second position -- will automatically become first in line.
Accordingly, you were asked to enter into a "subordination agreement" whereby you -- and the HELOC lender -- agree that the HELOC will remain in second place. This agreement is recorded among the land records at the same time that your new first trust is recorded.
The process to obtain a subordination agreement usually takes a couple of weeks, since it has to be signed by the HELOC lender. Your new lender should have alerted the settlement company that subordination was required, and obviously this was not done.
Does your settlement company share any of the blame? Possibly. But many homeowners who refinance want to pay off both loan, and if that company was not aware of your intentions, it may not be responsible for the problem.
Your situation is unfortunate, but I believe you have recourse. And I also suggest that you made the right decision to keep you HELOC in place.
The home equity loan gives you access to instant cash, when you need it. You do not pay interest on the loan until you take your money. In effect, the checkbook is in your dresser drawer waiting to be used.
We set up a settlement date, and on the morning of settlement, the lender advised us that the HELOC had not been subordinated, and further that we had to make the arrangements. When we contacted the HELOC lender, we were advised that the new lender had to make the arrangements.
The net result is that we were unable to settle at the loan rate which we had locked in, and had to pay a higher interest rate. The lenders were pointing fingers at each other, and both lenders were blaming the settlement company. We were the victims, who were caught in the middle of this three-ring circus.
What went wrong? Do we have any recourse?
Answer: Yes, since the refinance lender promised you that he would take care of the subordination, that lender breached its commitment and should be forced to honor the original lock-in interest rate.
I suggest that you contact the senior vice-president of the lender, explain the situation and ask them to correct the problem. If the lender (which happens to be a major, national bank) refuses, I would formally complain to the following government agencies: the Attorney General in your state, the Federal Trade Commission, and the Federal Reserve Board.
If you have proof that your lender made this promise to you (such as having a witness present) the fact that it may have been a verbal statement does not mean it is not binding. Oral contracts are enforceable except when real estate matters are involved. But here, we have a mortgage loan case -- and not a real estate issue.
What is subordination? An online dictionary defines this as "to make subject or subservient, or to treat as of less value or importance."
Let's take your situation: your home is worth $400,000, and you have a first trust (mortgage) in the amount of $150,000, and a HELOC in the amount of $100,000. It should be noted that the HELOC is a second trust, which is recorded among the land records in jurisdiction where your property is located.
You want to refinance the first trust, but keep the second in place. Your new lender wants to be in first trust position, so that should you become delinquent on your loan payments, that lender will be able to foreclose and be first in line to get the sales proceeds.
When you refinance, the moneys from the new lender will be used to pay off the original first mortgage. That means that your HELOC -- which was in second position -- will automatically become first in line.
Accordingly, you were asked to enter into a "subordination agreement" whereby you -- and the HELOC lender -- agree that the HELOC will remain in second place. This agreement is recorded among the land records at the same time that your new first trust is recorded.
The process to obtain a subordination agreement usually takes a couple of weeks, since it has to be signed by the HELOC lender. Your new lender should have alerted the settlement company that subordination was required, and obviously this was not done.
Does your settlement company share any of the blame? Possibly. But many homeowners who refinance want to pay off both loan, and if that company was not aware of your intentions, it may not be responsible for the problem.
Your situation is unfortunate, but I believe you have recourse. And I also suggest that you made the right decision to keep you HELOC in place.
The home equity loan gives you access to instant cash, when you need it. You do not pay interest on the loan until you take your money. In effect, the checkbook is in your dresser drawer waiting to be used.
Subscribe to:
Posts (Atom)