Trinity Credit Service

Trinity Credit Service

Your Home Mortgages and Moving Northwards

Do not skip the idea of refinancing your home mortgage. Time is now to take action or you may miss the bus. Going by the trends of the recent years, every time Federal Reserve Board Chairman Alan Greenspan opens his vocal shutter, the interest rates go up. If not by a substantial margin, then at least by 25 basis points.

A quarter of a percentage point may not seem a hefty jump given the fact that current federal funds rate is pegged at 2 ¾ per cent. But this conclusion is erroneous. For when did you pay an interest rate of 2 ¾ per cent on anything? When did your credit card company ask you to pay an interest rate of over 2 per cent? You must answer these questions and then look at your home mortgage possibilities to get a complete picture of credit scenario. It's a well-established fact that the federal funds rate and home mortgage rates have a co-relation and right now federal fund rates are moving northwards.

You may feel that you have missed the opportunity of subscribing to the lowest rates instruments of near future. But all is not lost. There is still some time to opt for better refinancing scheme. But if you want them, give up your laid back attitude.

Refinancing: Basic Premise

A small rate cut can be adjusted through monthly mortgage payments in smaller installments. This, in turn, will bring down your tax deduction levels. This point must be taken in consideration because nobody needs to tell you what your savings mean to you. You can further bring down your cost by asking for complete waiver or reduction in fees charged on application fees, origination fees, appraisal fees, legal fees, etc. If you are not in a position to make cash down payments, you can get it added to the mortgage figure.

A short mortgage term, say of 15 years instead of 30 years, may entail paying a higher interest on monthly payment. But in the process, the payment burden will get off your head sooner and your ownership rights will be transferred in a shorter period.

Standard mortgage terms are normally in the range of 15 years to 30 years. If your preference is a term which is shorter than the maximum limit and longer than the shortest limit, you can ask opt for a custom loan. This instrument facilitates you to designate a new term that suits you. You need to ask for a term that could create a right balance between a term less than 30 years and monthly payments on a lower side than those given out in a 15-year mortgage.

If for some reason, custom term is denied to you, opt for a 30-year mortgage and you could pay more than the monthly payment to clear your debts as soon as possible. Of course, it will depend upon your own monthly income and expenses equations. You should also not forget to negotiate in the beginning itself that no pre-payment penalty is imposed on you in the future.

Where and how to begin

You need to get your credit record reviewed with each of the three credit bureaus: Equifax, Trans Union and Explain. Often they may furnish reports littered with shocking mistakes like credit charges of accounts that are not yours, an identity mistake or even the balance details which are not in sync with your statements. Get them corrected.

Compare mortgage rates and fees online offered by several finance companies. Depending upon your analysis, subscribe to the services of a good mortgage calculator. It will tell you in precise terms as which loan instrument is the best for you in the given circumstances.

So now is the time for you to wake up to the refinancing possibilities. The hard negotiator in you needs to emerge to strike a best possible deal with the refinancing companies. Remember, it's a two way game out there: these companies need you as badly as you need them.

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Enhanced Residential Energy Credit

Congress recently enhanced the tax credit for solar energy and added two new energy systems to the list of residential energy enhancements qualifying for the residential energy efficient property (REEP) credit. The recently enacted Energy Improvement and Extension Act of 2008 (Energy Act) includes these provisions designed to give taxpayers an immediate tax break and partially cover the cost of these new systems that will lower future energy bills.

Prior to the Energy Act, individuals were allowed a tax credit for REEP expenditures for qualified solar water heating and photovoltaic systems. These credits, available for systems placed in service between January 1, 2006, and December 31, 2008, amounted to 30% of the system’s cost. The credit for individuals was 30% per system in any tax year, but was capped at a maximum of $2,000 per system.

For tax years beginning after December 31, 2008, the Energy Act makes several enhancements to previous legislation. First, the credit is extended for an additional eight years through 2016. Next, the $2,000 cap for solar water heating property expenditures is eliminated and the credit will be 30% of the system’s entire cost. This allows a taxpayer installing a $30,000 system to receive a $9,000 tax credit where, prior to the Energy Act, the credit would have been limited to just $2,000. A nice break considering the high cost of these systems. Finally, the credit is fully available to offset the AMT in 2009. As with prior law, the dwelling unit must be located in the U.S. and be used as a residence by the taxpayer.

The Energy Act adds small wind energy property and geothermal heat pump systems as components eligible for the REEP credit. Qualified small wind energy property is property that uses a wind turbine to generate electricity for use in connection with a dwelling unit in the U.S. and used as a residence by the taxpayer. The Code does not require the residence to be the principal residence of the taxpayer. So, wind turbines installed on a second residence appear to comply. This component of the credit is limited to $500 for each 1/2 kilowatt of capacity, not to exceed $4,000.
In addition, the 30% credit is now available for qualified geothermal heat pump system property expenditures. A qualified geothermal heat pump is geothermal heat pump property installed on or in connection with a dwelling unit located in the U.S. and used as a residence by the taxpayer. As with wind property, it appears that geothermal heat pumps installed in a second residence will qualify for the credit. This component of the credit is limited to $2,000 for any qualified geothermal heat pump system expenditure. Prior to the Energy Act, heat pumps qualified for the nonbusiness energy property credit, but that credit amount was limited to $300.

With the enhancement of the REEP credit, Congress has given taxpayers an even greater opportunity to save on taxes and their future energy costs as well. This law change also presents a tax planning opportunity since delaying the installation until 2009 could result in a new or higher tax credit. For example, if, during 2008, a taxpayer spends $10,000 on solar energy property, the credit will be limited to $2,000 (the cap). However, if that same taxpayer delayed the purchase until 2009, the credit would be $3,000 ($10,000 × 30%).

Please contact us to discuss the REEP credit or any other tax compliance or planning issue.

To ensure compliance with requirements imposed by the IRS, we inform you that, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein.

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