Technology TransactionsJune Round-Up: Low Rates Continue, Smart Bricks Are Here and Lower Taxes Set For Investors
Mortgage Rates Remain At Long-Time Lows
Mortgage rates continued their downward spiral, hitting 5.21 percent during much of June for 30-year fixed-rate financing with .5 or .6 points. According to Freddie Mac figures, 5.21 percent is the lowest rate seen all year.
What"s remarkable about such rates is the difference they make to borrowers: Get a 30-year, $300,000 loan at 5.21 percent and the monthly cost for principal and interest is $1,647.33. Compare this cost with the expense of financing an equal amount for 7 percent ($1,995.91) or 8 percent ($2,201.29).
Lower rates have substantially increased affordability -- one reason behind the record home sales seen in recent years. Whether such rates will continue at present levels is unknown, but relative to the past several decades now is a very good time to review mortgage financing options.
Is Now The Time To Sell Investment Homes?
Recent changes in federal tax laws suggest that owners with investment homes should look carefully at the marketplace: The capital gains tax rate has been reduced between May 6, 2003 and December 31, 2008. During this period the capital gains tax rate will be 15 percent, down from 20 percent. For individuals in the 10 or 15 percent marginal bracket, the news is even better because the capital gains tax has fallen to 5 percent until 2008.
What these changes mean is this: You bought an investment property for $100,000 and 20 years later it"s worth $400,000. In general terms, if you sold today you would have a $300,000 profit and owe a $60,000 tax to Uncle Sam at the 20 percent rate. Under the new rate your tax bill would be reduced to $45,000, a savings of $15,000 -- enough to buy a car or reduce college tuition costs.
Or, imagine if you retire. Now your income is substantially reduced. If you fall into the 10 or 15 percent marginal rate categories your capital gains tax would be just 5 percent -- $15,000 for our model transaction.
Nothing with taxes is simple, of course. Contact your real estate broker regarding market values and a CPA or enrolled agent for specific tax advice.
Smart Bricks Tell All
"If only walls could talk" used to be an expression but now it may become a reality if so-called "smart bricks" become commonplace.
Developed by scientists at the University of Illinois at Urbana-Champaign, the bricks are really a combination of construction materials and electronics. With a smart wall system in place, it"s possible to measure such things as heat and vibration in a building -- important information in case of fire or a earthquake.
Smart bricks might also be used one day in homes. Any room in the house could be a sound-sensitive nursery, kitchens could be monitored for heat, and basement areas could be checked for moisture even if the owners were out of town.
Efficient Appliances Cut Household Costs
You can save hundreds of dollars a year -- and sometimes more -- by replacing older appliances with more efficient ones over time. Look for the "Seasonal Energy Efficiency Ratio (SEER)" to save big dollars. According to the Environmental Protection Agency, "Energy Star" certified central air conditioners can cut fuel use by as much as 40 percent when compared with standard models while air-source heat pumps are "at least 20 percent more energy-efficient than a standard unit."
If you want quick and easy savings, try a programmable thermostat. Not only are such devices convenient, certified models can save consumers $100 annually.
What"s A Conforming Mortgage?
If you"ve bought a home or refinanced you know that lenders offer many mortgage alternatives, including what is called "conventional" financing.
So what is conventional financing and why is it important?
No matter where you move in the U.S. you can find a mortgage at the same rates and terms as just about anywhere else. The universal ability to find mortgage financing is the result of what is called the "secondary market." Here"s how it works.
A local lender has $30 million and makes 100 loans, each worth $300,000. The lender would seem to be out of cash and unable to make any additional loans, but in practice many lenders will combine a group of loans and sell them Fannie Mae, Freddie Mac, insurance companies and other private investors. These mortgage buyers make up what is called the secondary" market. With new money from the sale of existing mortgages, the local lender can again make more loans.
The trick is that not every loan can be sold in the secondary market, only loans which meet certain requirements. A "conventional" loan is a mortgage that meets such standards, say a 30-year, fixed rate loan for less than $322,700 with 20 percent down used to finance a detached house.
Are loans available with less down or a bigger loan amount? Sure. They may not be "conventional" but they work just fine for qualified borrowers when it"s time to buy or refinance real estate.
For more articles by Peter G. Miller, please press here.