Monday, February 16, 2015
Insurance is a way to hedge the risk of a possible loss on an asset that a person or entity cannot afford. The cost of the coverage is determined by risk and exposure to the insurer and reflected in the premium. Another way to say it is: don’t buy insurance when you can afford the loss. If you have a mortgage on your home, you must have insurance. It is probably prudent for most people to have property insurance but certain coverage might be avoided because you can afford the loss if you were to have an occurrence. Call your current agent and review your insurance coverage. Ask if there are any available discounts whether your property qualifies for now or after certain improvements are made. Monitored alarm systems, dead bolts, smoke detectors, updated electrical, certain types and ages of roofs among other things may be eligible for individual discounts. Compare the newly revised coverage and premium with other reputable agencies and insurers. Shopping can be time consuming but experts agree that the exercise can be valuable and should be considered every few years. Deductibles are an easy way to affect the premium based on the initial amount of loss that the insured wants to assume. The higher the deductible, the lower the premium. Determine the amount of risk you want to assume and select an appropriate deductible. Consider bundling your home and auto policies for possible discounts and leverage for better service. Don’t become a co-insurer. Most policies stipulate that a building must be insured for at least a certain percentage, usually 80% of its insured value to be able to collect the full amount of a partial loss. Insured value is not always the same as market value. The land is not considered in the value but replacement cost of the dwelling is. It isn’t possible to purchase insurance after a loss; it must be purchased before a loss is incurred. Premiums are based on careful analysis of insurer’s loss and overhead expense plus a profit. As a homeowner and an insured, it would be equally wise to analyze coverage, claim service, your risk tolerance and the premium you’ll pay for that coverage.
Tuesday, February 3, 2015
A simple decision to rent your current home instead of selling it when moving to a new home could have far reaching consequences. If you have a considerable gain, in a principal residence and you rent it for more than three years, it can lose the principal residence status and the profit must be recognized. Section 121 provides the exclusion of capital gain on a principal residence if you own and use it as such for two out of the last five years. This would allow a temporary rental for up to three years before the exclusion is lost. Let’s assume there is a $100,000 gain in your principal residence. If it qualifies for the exclusion, no tax would be owed. If the property had been converted to a rental so that it didn’t qualify any longer, the gain would be taxed at the current 20% long-term capital gains rate and it may incur a 3.8% surcharge for higher tax brackets. At least $20,000 in taxes could be avoided by selling it with the principal residence exclusion. Depreciation, a tax benefit of income property, is determined by the improvement value at the time of purchase or at the conversion to a rental whichever is less. If the seller sold the home and took the exclusion and then, bought an identical home for the same price, he would be able to have 60% more cost recovery and avoid long term capital gains tax. It is always recommended that homeowners considering such a conversion get advice from their tax professional as to how this will specifically affect their individual situation.
Monday, February 2, 2015
Over 50% of homebuyers don’t shop to find the best interest rate for their mortgage. While a buyer wouldn’t rarely purchase the first home they look at, they will accept the rate and terms offered by only one lender. While the borrower and the property affect the rate and terms that a lender may offer, it is not to be said that all lenders will offer the same terms and rates to the same buyer. Credit score, home location, home price and loan amount, down payment, loan term, interest rate type and loan type all affect the interest rate but different lenders can interpret this information differently. Shopping around to compare rate and terms for a mortgage is a reasonable exercise considering that a half percent lesser interest rate could not only lower the payment but the cumulative interest that is paid while that loan is outstanding. Some borrowers don’t shop the mortgage because they are concerned that having their credit checked multiple times could adversely affect their credit score. The credit bureaus take this into consideration when several requests are made by the same category of lender in a short period of time. Check to see the difference 0.5% could make in the mortgage you’re considering by using the calculator provided by Consumer Financial Protection Bureau. Contact your real estate professional for a list of trusted mortgage professionals to consider.