Tuesday, October 25, 2011
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Is Refinancing Right For Me?
Over the past year, mortgage rates have decreased significantly. If you have not already done so, it may be time to consider refinancing. In these economic times, however, there are some important questions you should think about. Do I have enough equity in my home? How will my credit impact my ability to refinance? How quickly will I recoup my expenses? These are all valid questions and should be considered carefully before taking the plunge.
Do I have enough equity in my home?
Answering this question could be trickier than you imagine. Since home values have been declining over the last several years, you may have less equity than you think. Even if you put 20% down on your home when you purchased it, you could still wind up with a loan-to-value (LTV) ratio of greater than 80%. The 80% LTV mark is important because if your LTV is higher than 80%, you will generally have to pay Private Mortgage Insurance (PMI). PMI is usually collected as a monthly premium that is added to your regular monthly mortgage payment. Having to now pay PMI when you previously did not may make refinancing unsuitable.
Of course, you always have the option of putting additional funds down on the loan in order to bring yourself to the 80% mark. This option should also be considered carefully. A comprehensive look at your full financial circumstances should be made before committing to this option. Factors such as: do you have enough emergency financial reserves; are you saving enough for retirement; do you have other higher interest rate debts that should be paid down first should be seriously considered or discussed with a financial planner.
These days, it is not unusual for a homeowner's LTV to be in excess of 100%. If you find yourself in this situation, you may still have options. Many lenders have programs in place to help borrowers in these circumstances. Your first step should be to contact your current lender to see what assistance they can offer. Another option is to check sources such as Bankrate.com and do a search for lenders who are willing to lend in excess of 100% LTV.
How will my credit impact my ability to refinance?
Your credit score and history impact your ability to refinance in two ways. The first is the rate you will obtain and the second is your likelihood of being approved. Many mortgage lenders base the rate they are willing to offer you on your credit score. The higher your score, the lower the rate and conversely. An option would be to search for a lender that does not base rates on credit scores, such as GCF Bank. As for being approved; any late payments, missed payments, judgments, or bankruptcies may adversely affect your ability to be approved.
How quickly will I recoup my expenses?
Let's face it, refinancing can be expensive. If you do not plan to stay in your home very long or if you are close to paying off your mortgage, it may not make sense to refinance. You should calculate how long it will take you to recoup your expenses as part of your decision to refinance.
The first step is to calculate the amount of money by which your monthly payment will be reduced. If your old monthly payment is $1,000 and your new monthly payment will be $800, the amount is $200. Financial calculators are available on the Other Tools Menu on our website to help you calculate your new estimated monthly payment amount.
The next step is to determine how much a refinance will cost. A general "rule of thumb" is from 3% to 6% of the loan amount. For a more accurate quote, use the Rate Quote feature on our website. As an example, 6% on a $100,000 loan equals a cost to refinance of $6,000.
The third step is to determine how long it will take you to recoup your expenses by dividing your cost by your monthly savings. In this example, $6,000 divided by $200 equals 30 months. If you plan to move in a year or your loan is set to payoff in 24 months, it may not make sense to refinance.
These are just a few things to consider before deciding to refinance. If you are unsure if refinancing is right for you, consult your financial advisor. If you do decide to refinance, take a look at our new online Mortgage Center. Our Mortgage Center allows you to check rates, get a personalized quote, calculate payment amounts, and apply for a mortgage or home equity loan. You can reach our Mortgage Center from our home page by selecting Mortgage/Home Equity Loan from the Banking With Us Menu or go directly there with this link.
Protect Your Mac
Malware is becoming a problem for OSX. Why?
After spending a long time being overshadowed by its competitor Microsoft, malware has finally set its sights on OSX, the operating system that runs on Apple Mac computers. Why? It isn't because Windows is more secure than OSX (A contest in 2008 proved that a Mac could be hacked in less than 2 minutes). To the creators of malware, it just makes dollars and sense.
Malware, the programs that slow down your computer and cost you time and frustration, is a business. The business is to utilize your computer as a "zombie" in botnets, which are then used to take down websites and prevent anyone from visiting them until the owner pays a ransom. These programs could record your internet usage and sell it to unscrupulous advertisers looking to save a quick buck.
Or, they could take a more personal approach, and capture all of your passwords and steal your identity or drain your bank account.
These are problems that Mac users have previously laughed about when questioned whether or not they're taking steps to prevent malware from getting onto their computer. But to be fair, previously, Mac users didn't have much malware to worry about. To malware creators, the minuscule market share OSX had at the time, compared to Windows, wasn't enough to justify the decision to spend time and money creating a program specifically targeting the OSX platform. Why write a program for OSX, when a hacker could write a code for Windows and spread it across 96% of the computer market?
Now that Apple is gaining popularity in markets around the globe with flagship products such as the iPhone, iPad, iPod, and the Macbook, it looks like malware creators are trying to get a piece of that Apple market pie.
The next logical question to ask would be, "How do I protect myself?"
Software Updates: Install your OSX updates when they become available. At times, Apple includes fixes for security risks that need to be addressed immediately. Take advantage of Apple's quick response time and protect yourself early.
Antivirus Software: That's right, the same companies that protect Windows users from their endless barrage of viruses have also created programs to protect your Mac. Features include antivirus, internet worm protection, automated virus detection and resolution system, and protection from software exploits. Norton and McAfee offer Mac versions of their software.
Be Safe: Don't download anything from sources you aren't familiar with. If your Mac says the website you're visiting is bad, it more than likely is. So stay away from it. Your Mac will always warn you before opening anything you download from the web. Take that time to consider if you really trust the source you're downloading from.
With these preventative measures in place, you have a very high chance of never coming into contact with a virus or malware program again.
After all, these programs were never intended to be put on a machine anyway. A famous man once said, "Design is not just what it looks like and feels like. Design is how it works."
Interfering with how a computer works interferes with its fundamental design, at least according to Steve Jobs. So now that your Mac is fully protected, you can go back to using technology how its creators intended.
Republican Presidential Candidate Herman Cain has recently surged in the polls. And not just in the Republican Primary Polls, but also the Big Event, with some polls showing him either in a dead heat or slightly ahead of President Obama in a theoretical 2012 match up. Although pundits attribute this surge in popularity to a variety of factors, certainly the most plausible explanation is his controversial tax plan known as 9-9-9. The plan has been referred to by various other monikers such as "Triple Nine" and even "Twenty Seven." Although it has not been widely reported, Cain's 9-9-9 Plan is actually only Phase One of a Two Phase Plan. The second phase would scrap the entire tax system by elimination of the IRS and repeal of the 16th Amendment. Wow.
Now for some details. Setting Phase Two aside for now, let's look at Phase One, the 9-9-9 Plan. This elegantly simple plan calls for:
9% Business Flat Tax
9% Individual Flat Tax
9% National Sales Tax
Since virtually all Americans currently pay state sales taxes, this one needs no explanation. Note: the Federal Sales Tax would be in addition to the State Sales Tax (if applicable).
So what do I think of the Plan? Readers of my other columns will quickly surmise that I favor some form of flat tax. So I like the 9-9-9 plan based on principle alone.
Why? The current tax code is an albatross, with more than 70,000 pages and millions of words. Indeed "tax preparation" in it's entirely, consumes as much as 5% of US GDP. Think about that. As I reported in a previous column, that is 35 times more than is spent on NASA. This is to say nothing of the damage caused by the redirection of investment from productive pursuits to tax shelters.
Why is the current code so complicated? Simple. Politicians have used the code to for two primary purposes: Social engineering and doling out political favors in exchange for votes. And both political parties are guilty. There is ample empirical evidence to support this claim.
So why do some oppose the plan? That reason is also quite simple. Out of the box, the 9-9-9 plan is not very progressive, meaning that companies and individual would generally all pay the same rate. Not the same tax, just the same rate. An individual or corporation making 100 times more would still pay 100 times more in taxes, but at the same rate.
Stated differently, under Cain's plan, the nearly 50% of American's who currently pay no Federal Income Tax would begin paying a sizeable share. This is a huge constituency and fair means more in this case. Remember: There is no interest like self interest, and hence it is no surprise that Americans not paying any taxes would be opposed to paying some. For the record, (utilizing data from the IRS's website), based on income, the top 1% of tax filers pay a whopping 40% of all income taxes. The top 10% of filers pay nearly three fourths of all taxes, while the bottom 50% of filers pay nothing. So we have an extremely progressive tax system.
Liberals love the current code precisely for this reason, believing that "the rich" should pay most if not all taxes. Conservatives, on the other hand, generally despise the current system because of its punitive treatment of investment and risk taking (read success). As previously mentioned, Cain's plan does include two feeble progressive components whereby companies and individuals living in "empowerment zones" would be able to claim a tax credit and a second exemption for "charitable contributions". Otherwise, the 9% rate would hold.
So what effect would such a plan have on the US economy?
For example, the Bank where I work currently pays (like most companies) about 40% of its net income in Federal taxes, one of the highest rates in the industrialized world. If, starting in January, the Bank would suddenly pay just 9%, the other 31% could/would be put to more productive uses such as supporting more loan growth, expansion of facilities, hiring or investment in new technologies. Multiply this by the more than 25 million companies in the U.S. and one gets the idea.
Rapid job growth:
Fact: Most of the job creators in this country are "rich." Many, if not most, spend a huge amount of time and resources searching out methods to exploit loopholes in the current tax code (remember the self interest incentive!). Freed from the complicated tax code, job creators could focus on making money (and thus creating jobs). And make no mistake, you can't have one without the other.
The most problematic part of Cain plan is the 9% National Sales Tax. Liberals hate it because right out front it taxes everyone, from those buying a pack of gum to a corporate jet. Alternatively, conservatives are suspicious of the 9% sales tax because it opens up a new revenue stream for the government with no guarantee that the rates won't increase. What gets missed is the fact that a sales tax is a tax on consumption. Consumption taxes encourage saving over spending. This would be a huge benefit for the U.S., where there has always been a truly dismal national savings rate - in large part due to the current tax code.
Separate armies of economists are both for and against the plan based on their own individual perspectives and bias. What do I think? The 9-9-9 plan is a wonderful first step to a fairer tax system that will definitely lead to higher growth rates and lower unemployment. The government's nearly $1 trillion stimulus was a bust largely because it failed to excite private capital into risk taking ventures. As one hedge fund manager recently told me, the big private capital investors are sitting on the sidelines waiting for "an improved business climate."
Who can doubt it! The 9-9-9 Tax Plan would be a meaningful first step in creating such a climate.
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