Here is a Great Example of the Current Mortgage Backed Securities Market…

by Florida's #1 Mortgage Planner on June 4, 2009

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

If you have wondered why mortgage rates have been climbing, falling, and climbing again, here is a great view into the current mortgage backed securities market…

 

Mortgage backed securities have done three virtual freefalls in the last week and a half, only 8 trading days.  Since MBS pricing is what drives mortgage rates, those freefalls resulted in spikes higher in mortgage rates and the subsequent climbs in MBS prices have brought rates down a bit and set up the next “dive”. 

While Sheikra, which I think still boasts the largest freefall of a dive coaster (205 feet), only has two freefalls built into it, the rollercoaster ride in the mortgage backed securities market has already had three and the ride is likely far from over.  If you would like to read more of my analyses of the markets and what may lie ahead, check out these posts…

Is the Mortgage Rate Bubble About to Pop?

Is the Air Being Let Out of the “Mortgage Rate Bubble”

[Post to Twitter] Tweet This Post 

{ 0 comments }

Is the Air Being Let Out of the “Mortgage Rate Bubble”

by Florida's #1 Mortgage Planner on May 31, 2009

To begin with, let’s analyze what has been happening to mortgage rates since my last post on the subject, just below and dated May 22, 2009.  Since then, mortgage backed securities have plummeted after breaking below their recent trading range on May 23.  While they have made back some ground, their virtual freefall has changed the overall outlook for mortgage rates, and may very well signal the beginning of climbing mortgage rates.  The question in my mind these days is how high will they go and just how fast.  Taking a look at the charts below will show just how fast they got worse and the potential speed at which they could rise in the coming months, if not years.

MBS 1-Month Chart MBS 6-Month Chart

The above charts are snapshots (via Mortgage Market Guide) of the market from Wednesday, even before the close for the day.  Thursday saw MBS pricing drop and hit their 200-day moving average before beginning their retracement to today’s levels.  The chart on the left covers the last month, while the one on the right spans the last 6 months, showing we have seen mortgage rates at the same levels as 6 months ago, before the Fed started purchasing mortgage backed securities and artificially manipulating the markets and creating the “Mortgage Rate Bubble” potential.

So what lies ahead?

While inflation is the archenemy of mortgage backed securities and mortgage rates, and we will get back to it later, other issues are taking place that could ensure the steady climb of mortgage rates.  One of the biggest factors can be seen by looking to the Far East, particularly China and their actions.  But while China’s actions may be raising alarms, their actions are simply reactions to what our government is doing.  And the US governments response?  Typical politicians, empty promises.

So what has China been up to.  For starters, they have backed out of buying longer term US debt instruments, including mortgage bonds.  They remain part of the purchasing of short term US Treasuries, but they are opting to buy gold versus US debt.  They have even been voicing publicly their concerns of the USA’s ability to back their debt up, something that Standard & Poors, the rating agency has also noted in their talks of the US losing its AAA rating. 

Is China really concerned that the US can’t repay their debts?  Not necessarily, rather they are concerned about what that debt will actually be worth after the US government has finished debasing the dollar through its current monetary policy of “quantitative easing”.  Yes, the more and more our Federal Reserve and Treasury Department throw good money into the markets in a feeble attempt to fight a recession, the less the dollar will likely be worth.  (And why are we fighting a recession anyway since it is part of a healthy economic cycle?)  Since the US switched to the current fiat currency system in 1971, the purchasing power of the US dollar has dropped 81%.  It is down 94% since 1933 and the breakaway from the gold standard.  With the printing presses running 24/7 these days, chances are the dollar’s value is going to drop significantly, which we have already been seeing recently as the euro, pound, and other currencies are hitting highs for 2009 and looking to break to new heights again. 

And getting back to inflation.  While the dollar continues to lose its value, aided by Big Ben Bernanke and his buddies whom think that debasing the dollar will get us out of this mess, guess what results we receive?  Yes, that’s right, inflation (if not hyper-inflation).  We can see it in the recent run-ups of oil, gold, and even silver.  You can bet that the next set of inflationary data is going to reflect the results.  And since inflation is the archenemy of mortgage rates, the most likely result is higher mortgage rates.

But wait, the Fed has been buying up mortgage bonds to drive mortgage rates to 4.0% (Jim Cramer of Mad Money on CNBC even praised the Fed for their actions) and save the housing markets.  First off, the Fed can buy MBS, but the markets dictate prices and thus mortgage rates.  That reason is the beginning of why the Fed needed to buy MBS, it being the only way to artificially drive mortgage rates down.   They were successful at bringing the rates down, though not as low as the media and everyone wanted.  And now?  Well, the Fed has cut back on their MBS purchasing, part of the reason for the rapid increase in mortgage rates we saw last week.

How Certain Are Mortgage Rates Moving Higher?

Part of the reason mortgage rates are headed higher can be seen in the MBS pricing charts.  Just like any other type of security, the charts create patterns which tend to be indicative of future movement.  Most recently (namely the last 6 months, MBS  pricing has essentially been in a sideways trading range and mortgage rates have been fluctuating somewhat, but remaining low overall.  Now, as you can see, that trading range has been violated and a new trend will take place after some corrective movements occur.

The pattern most likely to form based on economic issues and the view of the charts is a downtrend in pricing, or an uptrend in mortgage rates.  Can the Fed stop it?  Maybe, but I wouldn’t bet on it.  Traders are already demanding higher rates of return on their money to hedge against inflation risks and that demand will likely continue to grow, resulting in higher mortgage rates in the future.

[Post to Twitter] Tweet This Post 

{ 1 comment }

Is the Mortgage Rate Bubble About to Pop?

by Florida's #1 Mortgage Planner on May 22, 2009

If any of you have been following my work, especially over at Florida Mortgage Daily where I post regular mortgage market commentary, you knew I coined the next bubble the “Mortgage Rate Bubble” a long time ago.  Others are now using the “Bond Bubble”, focusing on Treasuries and not mortgage backed securities and mortgage rates, but it is essentially going to happen the same to MBS as it is to Treasuries.  So, just what is it and when is it going to happen?

First off, just in case you haven’t been following me for a long time, you need to understand that mortgage rates are derived from the mortgage backed securities market and they do not follow the 10-year Treasury Note like many mortgage professionals, real estate professionals, and others trying to act like they know what’s going on say.  In case you don’t believe me, take a look at this picture snapped about a  week ago when the T-Note was actually trading dramatically opposite mortgage bonds!!  Still think mortgage rates can be tracked by those watching the 10-year Treasury Note?

Again, for those whom have not been following my work, I have explained that the archenemy of mortgage bonds (MBS) is inflation and that inflation will eventually arise and attack the markets.  But there are other factors, news and economic data among the greater forces, that drive yields on mortgage bonds and ultimately mortgage rates.  Did you notice how mortgage rates have climbed since yesterday morning, after they appeared to be in good shape?  Still waiting for those 4.5%, 4.0% or even lower mortgage rates to show up as promised by the “media”, such as Jim Cramer (CNBC’s Mad Money)?

Well, yesterday and into today, news of Standard & Poor’s actions have been making the headlines and some other more subtle things are occurring that you should be aware of, all of which will help the “Mortgage Rate Bubble” pop.  Let’s just say there are some pins poking into the bubble right now.  What are they? Take a look…

Standard and Poor’s is a rating agency, most of you have probably already heard of them from the news over the last year.  But what you may not know is that they rate government debt like they do corporate debt and that is what is raising concerns right now.  You see, yesterday, Standard & Poor’s threatened to take away the AAA rating of the U.K., which essentially means that their is more risk of failure to repay that debt.  This then translates to investor demand for higher yields on that debt to offset the added risk, and higher yields when associated with mortgage backed securities equates to higher mortgage rates.  To make matters worse for our own mortgage rates, Standard & Poors also stated that the USA’s rating of AAA is in jeopardy as well. 

If you watched all of the markets yesterday, and even into today, you would have noticed a fairly rare occurrence and one that may signal the “Mortgage Rate Bubble” popping. Typically, when the stock market drops, Treasuries and mortgage bonds see their yields drop as well (as their prices climb).  That was not the case yesterday as stocks dropped and mortgage rates climbed!!! 

Adding to the problems for mortgage rates is the fact that the Federal Reserve has cut back on their MBS and Treasury purchasing.  In fact, during an auction yesterday, the Fed only purchased $7.3B, or roughly 16% of the total debt offered, which is down from 30% at an auction earlier this week.  Yesterday also saw the Treasury announce another $162B of debt that will flood the markets next week.  That brings the total marketable U.S. debt to around $6.3 trillion and just who exactly is going to buy all this up?  China?  Think again, but that story is for another blog if I can get to it, but let’s just say that a collapse of the US dollar may be imminent.

So why would mortgage rates keep climbing in this economic environment, even when inflation hasn’t even come forth as a problem yet?

The 10-year T-note has passed through its 200-day moving average, raising concerns that the upcoming supply flood, along with the Fed’s quantitative easing measures, will bring forth overwhelming challenges for the Treasury market, and that will likely spill over into the mortgage backed securities market.  In fact, most likely the only hope the markets have a chance to maintain current mortgage rates is if the US’s macroeconomic data gets more alarming than it is, which has not been the case and does not look like it will for the foreseeable future.  For those that have not been heeding my warnings thus far…

“If you have been planning to refinance your mortgage or even purchase a home this year, do it now, before it is too late.”

[Post to Twitter] Tweet This Post 

{ 2 comments }

Are You Having Trouble Figuring Out How Much a Trillion Dollars is?

by Florida's #1 Mortgage Planner on May 15, 2009

With the Obama Administration on a spending spree like no other president before, coming up with a $3.6 trillion budget for 2010, you would think the American public, among all the politicians, would be outraged at the potential effects that will result.  But then again, many Americans are only being able to comprehend how much a thousand is, and some may even understand a million or even a billion.  How are they supposed to comprehend a trillion?

A recent poll showed that when asked how many millions are in a trillion, only 21% of Americans got the answer correct.  That is less than 1 out of every four.  In fact, that is almost as bad as 1 out of every 5!!!  Is it really any wonder why Americans have no clue where Obama is taken the US financially?  Any wonder why inflation, even hyper-inflation, is not on the tips of everyone’s tongues?  Are you one of those people out there that do not know the correct answer to the survey question?

Well, in case you are wondering what the answer is, there are one million millions in a trillion.  Getting a better idea of just how much a trillion is?

Here is one analogy that may help you, and may even blow your mind.  If we equate a dollar to one second in time, how much time is one trillion dollars?  Any guesses?  Did you know before you saw my tweet and FB update?  Be honest now.

Let’s break it down…

$1 = 1 second
$1,000 = 16 minutes, 40 seconds
$1,000,000 = 11 days, 13 hours, 46 minutes, 40 seconds
$1,000,000,000 = 31 years, 251 days, 7 hours, 46 minutes, 40 seconds

You now know how much a billion dollars is worth at a dollar per second.  Any guess as to a trillion now?  Well, here is the answer…

316 centuries, 88 years, 32 days, 1 hour, 46 minutes, 40 seconds!!!

Think you can live that long?  And that is factoring in Leap Years folks.  Now, let’s look at Obama’s wonderful budget, focusing only on the projected deficit.  Peter Orszag, the Budget Director, said this year’s deficit will be $1.841 trillion, or just over 583 centuries.  Factor in that the Obama budget is based on the economy growing 3.5% this year, a good number even in good times, and you may as well add a few hundred more centuries to that figure.

Now, I am not even going to calculate the Gross National Debt, which is over $11.3 trillion dollars right now, but you can see that Obama is certainly not going to help things with all of his spending.  In fact, the US could easily go bankrupt at the rate we are going.  But wait, we have the Federal Reserve and Treasury Department, which are already running the printing presses, so why not just create more money and we can solve our problems that way.  Yeah, that’s the ticket.  That is the way the government will likely develop the necessary money, creating it out of thin air, which the end result is none other than inflation.  As far behind as we are getting and with the dramatically increased government spending, hyper-inflation is ultimately going to have to occur, that is unless somehow, these trillions can be vacuumed up as easily as they have been created, and I wouldn’t bet on that.

Now, what will mortgage rates do?  Well, they hate inflation, so they will climb, most likely into double digits, maybe high teens, maybe even higher, setting new records.  What can you do to survive financially?  The answers to that vary and your answer may be different than the person’s living next to you, so I am not even going to go down that path, but you had better be prepared, just in case this all really does happen.

[Post to Twitter] Tweet This Post 

{ 0 comments }

Is a Greater Depression in the Works? And What Will Happen to Mortgage Rates as a Result?

by Florida's #1 Mortgage Planner on May 3, 2009

Chances are that you have seen articles and other media types reference the relationship between the Hoover-FDR regime and the current Bush-Obama regime.  Looking back to the time of the Great Depression (aka the Hoover-FDR regime), we can see shocking similarities that indicate history is destined to repeat itself, though this time may be worse.

Now, I am not one for spreading fear, or even for intentionally raising controversy.  However, I do like to spread reality when it appears necessary, such as I have done in reference to Money Merge Accounts and other mortgage acceleration programs.  This is one of those times when our leaders should learn from history so as not to repeat it, and as of now, it appears they are failing in that area.

As I have been reading my “get back to later” emails yesterday, I found some interesting perspectives that were presented.  One of the more interesting ones is that of the comparison of Obama to John Law, the original “New Dealer” that created hyperinflation by using a bank to create money out of nowhere to pay for government programs in France during the early part of the 18th century.  Here is what Doug French of the Mises Institute had to say…

“We can now throw Obama in with the other inflationist New Dealers, and with a compliant Treasury and Federal Reserve and their expanding monetary tools at the ready, he can do more damage than even John Law.”

Personally, I think Mr. French is right on the money with this one.  When looking back in comparison to FDR, it is important to note that an investigative journalist, John Flynn, whom backed FDR prior to his election subsequently became FDR’s fiercest critic, which FDR thus effectively silenced by having the Yale Review stop publishing him.  This what Flynn had to say in reference to John Law…

“As a New Dealer, [Law] was not greatly different in one respect from the apostles of the mercantilist schools – the Colberts, the Roosevelts, the Daladiers, the Hitlers and Mussolinis and, indeed, the Pericles – who sought to create income and work by state-fostered public works and who labored to check the flow of gold away from their borders”

Are you seeing the similarity to our current situation here yet?  Just in case you aren’t yet, let’s take a look at what Ivan Eland of the Independent Institute had to say about the comparison…

“Both Hoover and FDR tried to artificially pump up the economy by increasing credit, aiding banks and increasing federal expenditures, including spending on futile ‘make-work’ public works programs – all of which required the economy to fall farther back toward equilibrium, thus turning a mundane recession into the Great Depression.”

“Similarly, Bush partially or wholly socialized financial institutions, and Obama has gone on a public works binge. They both have increased credit and vastly increased federal spending and regulation.”

I think it is pretty clear now that we are duplicating the actions that were proven to have created the Great Depression and hyperinflation.  With the Federal Reserve and the Treasury creating money out of thin air, and our government doing everything possible, and then some, to extend credit and increasing government expenditures including “public works programs”, how can anyone not see what lies ahead?!?

It reminds of the definition of insanity presented before, that “insanity is when you repeat the same actions over and over again and expect a different result”.  Well, it appears our government is truly insane!!!!

Now, what does this all have to do with mortgage rates?  Well, based on history, particularly that of John Law, hyperinflation is just around the corner.  Since inflation is the archenemy of bonds, and mortgage backed securities (aka mortgage bonds) are what determines mortgage rates, mortgage rates will be hard pressed to remain low, in fact I expect them to hit the double digits in the not to distant future.  I can only hope I am wrong, but then I guess that thinking would make me insane as well.

(source for quotes: Agora Financial’s 5-minute Forecast)

[Post to Twitter] Tweet This Post 

{ 0 comments }

Equity Management Dead? Think Again!!!

by Florida's #1 Mortgage Planner on April 30, 2009

As promised, here is a post on the lunacy of those that just don’t get it.  Of course, this particular individual is an advocate for that complete waste of money program called the Money Merge Account.  I have proved time and again that there are much better ways to manage your debt and equity to increase safety, rate of return, and especially liquidity.  The latter is more important now than ever for two reasons. 

Liquidity, aka cash readily accessible, is what is keeping some homes from facing foreclosure and allowing others to invest and reap great returns even in the current market.  The individual who wrote me thinks that since the stock market is down, that those whom were paying off their mortgage, especially through the MMA program, were better off.  That is actually a ridiculous statement as I will prove yet again, with facts of course.

Besides the cash in hand reality, contrary to popular belief, those whom had their money in mutual funds under good management still lost less money than most homeowners did in the value of their properties.  Using myself as an example, as I often do, my home decreased in value nearly 50% over the last few years.  At the same time, my 401(k)s values dropped roughly 42%, that being since I did not move to an all cash position like I could have and minimized the loss, period.  So, in essence, comparing the two yields a nearly 8% better performance under my 401(k)s than my home’s equity.  That is leaving out the fact that home equity itself can never have a “positive” rate of return.

Now, let’s look at the reality of home equity.  Let’s assume you put 20% down on a $325,000 home, you now have equity of $65,000.  Now, we will assume that your home appreciated for a while after you bought it, let’s say to $670,000.  Did your equity actually have a rate of return?  You might think so, but reality is that the home appreciated not due to how much money you put into it, rather due to market forces.  However, you did yield a $280,000 profit (431%) on your money if you sold at that top.

Now, let’s say you bought your property, again 20% down, only this time at the top of the market, aka at $670,000.  You now had $134,000 in equity at the beginning.  The market collapses and now your home is only worth $355,000.  Did your equity have a negative rate of return?  Once again, your equity had no rate of return itself, again market forces drive the price, not how much money you have in the property.  However, in this case, the you would have lost $315,000 (-235%) on your money, right? 

Not necessarily is the correct answer to that question.  In “equity”, that answer is correct, however if you had an interest only loan, that loss is only $134,000 still, all the money you had “deposited” into the home.  If the you had been paying off your mortgage, especially as fast as possible, that loss grows.  Let’s say you paid off an additional $50,000, your loss is now maxed out at $184,000, increasing your loss.  What about if you were able to knock off $100,000 from your mortgage?  Great, you just added to your losses, bringing them to $234,000, and you still walk away from a sale with nothing.

Ok, now you are forced to sell the home, and let’s assume you manage to get a short sale down at the amount you owed.  Which situation would you rather be in?  Losing $134,000, $184,000, 234,000?  I am guessing the $134,000, at least I hope that is how you are thinking.  I know there are other factors that go into this, but this example is to prove a point.

Ok, let’s get back to the advantages of keeping your money in investments or simply in cash.  One big advantage of having cash on hand is that you can pay your mortgage and living expenses for quite some time even during a job loss.  That to me is a huge stress reliever, especially in the current economic environment.  Beyond that, having cash on hand provides the ability to take advantage of opportunities, which many people are doing today, yielding great rates of return, far exceeding the costs of their mortgage(s).  Again, using myself as an example, I had a stock portfolio that increased over 60% in less than two months.  I currently own stocks that yield over 18% in dividends, which are only taxed at 15%.  If you think you cannot make more money than your mortgage costs you, think again.

Now, is equity management, equity harvesting, or any other mortgage strategy besides paying off your mortgage as quickly as possible right for you?  That depends on your specific situation and you need to be working with an appropriately qualified mortgage professional, even a team of financial professionals, to ensure the best strategy for you, along with making sure it is implemented and monitored.  I do my own strategies personally, but I have been trained in finances and investing having had securities licenses before, along with my mortgage planning background.  Yet, even I discuss strategies with financial planners, CPAs, and others I work with and I never stop learning.

So, to those who think that just because the stock market is down is enough reason to push their agenda, selling a product that costs more than it saves, and does nothing more than promote financial incompetence, may I recommend you take some training and study how money truly works and provide genuine comparisons of ALL strategies to your clients.  Granted, you may not make that much money, but at least you can truly say you have your clients best interest in mind.  And for homeowners reading this, make sure you seek a mortgage professional whom can show you side by side comparisons of ALL strategies and explain all of the risks and rewards associated with each one, so you can make a truly informed decision as to which strategy is best for you.

[Post to Twitter] Tweet This Post 

{ 0 comments }

Fed Sees Contraction Slowing, Mortgage Rates Climbing?

by Florida's #1 Mortgage Planner on April 29, 2009

As I have mentioned numerous times before, the Policy Statement released by the FOMC at the time of announcing their decision on the Feds Fund Rate is the more important factor in determining which direction mortgage rates will move in the future.  I had expected a big shock to the markets, possibly even an increase in their MBS purchasing agenda yet again.  This time there was no “surprise”, rather a renewed commitment to the $1.25 trillion MBS purchasing spree, along with  the renewed commitment to use ALL available tools, including those not yet created I am sure, to open the floodgates of credit. 

Let’s break it down…

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower (no surprise hear as that is what the data has been indicating for a while now). Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit (the latter being the real problem since credit is what drove the economy before and is seen as the salvation of the economy). Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing (it’s called survival tactics). Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time (the pool water needs to be tested again before jumping in). Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability (Was it really their actions that are helping the economic recovery?  Is the economy really recovering or will it follow the path of the Great Depression and crash again in 2011?).

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued (While there is slack, it is interesting to note that our government has gone way beyond others in handling the situation.  This overreaction is likely to create high inflation rates, even hyper-inflation, so once it becomes un-“subdued”, watch out). Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term (Interesting outlook, the question being how much time and can the Fed react appropriately and timely enough to prevent excessive inflation, something I highly doubt).

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability (and will likely create even more). The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period (Well, they can’t go any lower unless they pay people to borrow). As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn (actually shortened the time of purchasing, but essentially both recommitments to artificially propping the markets – can you say “bubble”?). The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets (expect purchasing to be aggressive when it appears rates will increase dramatically, such as today). The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs (they feel without the credit floodgates opened, our economy will not recover). The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of financial and economic developments (if they don’t like the way the balance sheet looks, they will just print more money).

Well, it looks like the Fed has everything under control still, right?  After all, they recommitted themselves to printing as much money as necessary and artificially manipulating the markets, not to mention using everything they can possibly think of to get credit flowing.  I am sure they will be able to just “soak up” all that money supply once inflation really starts going.  Yeah, right.

[Post to Twitter] Tweet This Post 

{ 0 comments }

Will the Federal Reserve Pay You to Borrow Money?

by Florida's #1 Mortgage Planner on April 28, 2009

As strange as that sounds, many moons ago I mentioned that the Fed, led by Ben Bernanke, would love nothing more than to pay people to borrow money and a study released yesterday proves I was right.  The fact is that Big Ben wants inflation so bad that he would be willing to pay others to borrow money if he could actually do that. 

The study that was released yesterday morning stated that the Federal Open Market Committee (FOMC) was presented with the suggestion that the optimal interest rate would be –5%.  That’s right, supposedly the best interest rate would be to pay others 5% to borrow money, despite the fact inflation is near 2%, so the net loss on money lent would be around 7%.  That’s OK though, they don’t have to take the loss, they just pass it on to every American with increased taxes down the road.  Oh, and don’t be naive, those higher taxes will be coming, it is just a question of when.

Nevertheless, since the Feds know that they cannot go negative and they are already sitting near zero percent, they recommend keeping up, even stepping up, other unconventional policies that have the same effect as negative interest rates, such as the announcement of the stepping up of MBS (mortgage backed securities) purchases to $1.15 trillion.  The research the Fed was acting upon actually suggested an even greater amount, but the Feds decided to play it “conservative” as one Fed governor defined it.

Why am I bringing this up right now?  Easy, the FOMC is meeting again as this is posted so be prepared for more of these "unconventional” policies to be released.  What worries me is that Big Ben himself already stated that inflation will be an issue after the next FOMC meeting, so we are likely in for a shock as the Fed makes their announcement tomorrow.  There is even talk that the Fed may up their MBS purchasing yet again.  Remember that the Fed’s Policy Statement has a much greater impact on mortgage rates than their actual decision, so I will give you a rundown once it is released tomorrow at 2:15.

[Post to Twitter] Tweet This Post 

{ 0 comments }

Tax Planning: Everyone Should be Doing it

by Florida's #1 Mortgage Planner on April 23, 2009

I cannot tell you how many people I come across whom do not plan ahead for the tax year.  We just past April 15, the day personal taxes are due, and when many options for the last year expire.  Nevertheless, it is not too late to take advantage of some tax planning for this year. 

Now, I am not an accountant, CPA, or even a tax preparer (except my own business and personal taxes), so what follows is just from my own perspective and may or may not apply to your situation.  If you don’t feel like looking through the thousands of pages of tax code yourself, I suggest seeking professional guidance as to how you can save on your taxes.

OK, with the above in mind, let’s get into some possibilities for you.  Did you know that one of the best ways to save on taxes is by owning a small business?  That’s right, if you don’t already have own, you may very well want to start one, but don’t do it simply to save taxes or the IRS will get you.  There is a lot of planning and preparation that goes into starting a business, so it is not something to enter into with little or no thought, as consequences can be very costly.  There are plenty of resources to be found on the internet about starting and maintaining a business, though some bad info is out there as well.  I have two businesses currently operating with another in limbo.  If you want more information, please feel free to contact me.

Now, even if you don’t have a small business, there are many tax advantages to be had.  I come across people all the time that don’t realize some of the deductions that they can legitimately take, especially when it comes to their current employment.  You would be surprised some of the legal deductions one can take as it applies to being an employee.  For instance, if your job requires you to be properly groomed and cannot have a beard (such as being a pilot), you may be able to deduct the costs of haircuts, razors, and other grooming supplies.  These types of items are placed on a Schedule A, and are subject to limitations of course, but as they add up, your tax savings may be adding up also.

One of the most obvious deductions is that of mortgage interest, which has its own limitations as well.  Most also know of the deductibility of real estate taxes as well.  But did you know you can deduct investment interest expenses?  Did you know that you may be able to deduct mortgage interest as investment interest in certain circumstances?  Did you know you may be able to deduct mortgage interest as interest on a business loan in certain circumstances? 

Did you also know that there are some deductions that can be bundled together and carried forward to the next year, allowing you to take advantage of the standard deduction this year and combining several deductions the next that exceed the standard deduction.  There are also certain tax deductions, even tax credits, that you can take even when using the standard deduction.  Again, seek a professional for your own situation and see what you can take advantage of.

Chances are that you have also heard of Flexible Spending Accounts, Health Savings Accounts, or the like that allow you to take a portion of your income and place it aside tax free for certain qualifying expenses.  For Health Savings Accounts, you may even be able to use money from this tax free account to pay for over the counter medications, such as aspirin.  If you have been budgeting, or at least have an idea of how much you spend annually on qualifying expenses, why not create one of these accounts (if available to you) and save on your tax bill.

Of course, since I am not writing a book here, I cannot even begin to cover all of the possibilities you have to save money on your tax bill.  You need to seek professional guidance (or read the tax code) to find all that apply to your specific situation, but if you do so, the savings generated could go a long way to helping you reduce debt, invest more, and become financially free. 

Now many of you reading this will simply find a way to boost your refund.  That is poor planning, and believe me when I say I am guilty of getting over ten thousand dollars back on a couple of occasions, which actually pisses me off a bit.  You see, if you do proper tax planning, you can achieve those savings on a monthly basis, and receive a slight refund, or even pay some when your taxes are due.  Why give Uncle Same an interest free loan on your hard earned money?  You may be able to adjust your W-4 as an employee and boost your cash flow today and get your money working for you.

The bottom line is that there is no time like the present to begin your planning for your taxes and taking advantage of every possible deduction or tax credit.  Doing so can result in tremendous tax savings, increased cash flow, and even attaining financial freedom much sooner than you expected.  Don’t delay and implement your tax strategies today.

[Post to Twitter] Tweet This Post 

{ 0 comments }

← Previous Entries