UFREETV - FINANCIAL SECTION INFORMATION TO HELP YOU MAKE CRITICAL FINANCIAL DECISIONS
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WHAT IS THE DIFFERENCE BETWEEN A REVERSE MORTGAGE AND A HOME EQUITY LOAN? Difference Between a Reverse Mortgage and a Home Equity Loan Generally a home equity loan, a second mortgage, or a home equity line of credit (HELOC) have strict requirements for income and creditworthiness. Also, with other traditional loans the homeowner must still make monthly payments to repay the loans. A reverse mortgage generally has no credit score requirements and instead of making monthly mortgage payments, the homeowner receives cash from the lender.
With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. Typically, the more valuable the home, the higher the loan amount will be, subject to lending limits.
A reverse mortgage gives over part of your homes equity to a lender and they in turn give you a monthly payment (reverse of a normal mortgage) but you need to either own the home completely or have a very low balance and it is only for people over the age of 62. You don't have to pay the money back the balance you received is simply given back to the bank when the home is sold or property rights transferred. A equity loan is basically a second mortgage on a home, the property is used as collateral the bank gives you a certain amount either as a lump sum or line of credit and you make regular monthly payments.
To summarize the key differences, with traditional loans the homeowner is still required to make monthly payments, but with a reverse mortgage the loan is typically not due as long as the homeowner lives in the home as their primary residence and continues to meet all loan obligations. With a reverse mortgage no monthly mortgage payments are required, however the homeowner is still responsible for property taxes, insurance, and maintenance.
A reverse mortgage is a form of equity release (or lifetime mortgage). It is a loan available to home owners of retirement age, enabling them to access a portion of their home's equity. The home owners can draw the mortgage principal in a lump sum, by receiving monthly payments over a specified term or over their (joint) lifetimes, as a revolving line of credit, or some combination thereof.
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases by the amount of the principal included in the payment, and when the mortgage has been paid in full the property is released from the mortgage. In a reverse mortgage, the home owner is under no obligation to make payments, but is free to do so with no pre-payment penalties. The line of credit portion operates like a revolving credit line, so a payment in reduction of a line of credit increases the available credit by the same amount. Interest that accrues is added to the mortgage balance.
Title to the property remains in the name of the homeowners, to be disposed of as they wish, encumbered only by the amount owing under the mortgage.
If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home in some areas. However most lenders do not like to take a second or third lien position behind a reverse mortgage because its balance increases with time. It is rare to find reverse mortgages with subordinate liens behind them as a result. A reverse mortgage may be refinanced if enough equity is present in the home, and in some cases may qualify for a streamline refinance if the interest rate is reduced.
A reverse mortgage line is often recorded at a higher dollar amount than the amount of money actually disbursed at the loan closing. This recorded lien is at times misunderstood by some borrowers as being the payoff amount of the mortgage. The recorded lien works in similar fashion to a home equity line of credit where the lien represents the maximum lending limit, but the payoff is calculated based on actual disbursements plus interest owing.
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WHAT YOU SHOULD KNOW ABOUT TAXES: In the United States, a tax is imposed on income by the federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income.
Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. An alternative tax applies at the federal and some state levels.
Taxable income is total income less allowable deductions. Income is broadly defined. Most business expenses are deductible. Individuals may also deduct a personal allowance (exemption) and certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits.
Capital gains are taxable, and capital losses reduce taxable income only to the extent of gains (plus, in certain cases, $3,000 or $1,500 of ordinary income). Individuals currently pay a lower rate of tax on capital gains and certain corporate dividends.
Taxpayers generally must self assess income tax by filing tax returns. Advance payments of tax are required in the form of withholding tax or estimated tax payments. Taxes are determined separately by each jurisdiction imposing tax. Due dates and other administrative procedures vary by jurisdiction. April 15 following the tax year is the last day for individuals to file tax returns for federal and many state and local returns. Tax as determined by the taxpayer may be adjusted by the taxing jurisdiction.
A tax is imposed on net taxable income in the United States by the federal, most state, and some local governments. Income tax is imposed on individuals, corporations, estates, and trusts. The definition of net taxable income for most sub-federal jurisdictions mostly follows the federal definition.
The rate of tax at the federal level is graduated; that is, the tax rates of higher amounts of income are higher than on lower amounts. The lower rate on lower income was phased out at higher incomes prior to 2010.[clarification needed] Some states and localities impose an income tax at a graduated rate, and some at a flat rate on all taxable income. federal tax rates in 2009 varied from 10% to 35%.
From 2003 through 2011, individuals were eligible for a reduced rate of federal income tax on capital gains and qualifying dividends. The tax rate and some deductions are different for individuals depending on filing status. Married individuals may compute tax as a couple or separately. Single individuals may be eligible for reduced tax rates if they are head of a household in which they live with a dependent.
Taxable income: is defined in a comprehensive manner in the Internal Revenue Code and regulations issued by the Department of Treasury and the Internal Revenue Service. Taxable income is gross income as adjusted minus tax deductions. Most states and localities follow this definition at least in part, though some make adjustments to determine income taxed in that jurisdiction. Taxable income for a company or business may not be the same as its book income.
Gross income: includes all income earned or received from whatever source. This includes salaries and wages, tips, pensions, fees earned for services, price of goods sold, other business income, gains on sale of other property, rents received, interest and dividends received, alimony received, proceeds from selling crops, and many other types of income. Some income, however, is exempt from income tax. This includes interest on municipal bonds.
Adjustments: (usually reductions) to gross income of individuals are made for alimony paid, contributions to many types of retirement or health savings plans, certain student loan interest, half of self-employment tax, and a few other items. The cost of goods sold in a business is a direct reduction of gross income.
Business deductions: Taxable income of all taxpayers is reduced by tax deductions for expenses related to their business. These include salaries, rent, and other business expenses paid or accrued, as well as allowances for depreciation. The deduction of expenses may result in a loss. Generally, such loss can reduce other taxable income, subject to some limits.
Personal deductions: Individuals are allowed several nonbusiness deductions. A flat amount per person is allowed as a deduction for personal exemptions. For 2012 this amount is $3,800. Taxpayers are allowed one such deduction for themselves and one for each person they support.
Standard deduction: In addition, individuals get a deduction from taxable income for certain personal expenses. Alternatively, the individual may claim a standard deduction. For 2012, the standard deduction is $5,950 for single individuals, $11,900 for a married couple, and $8,700 for a head of household.
Itemized deductions: Those who choose to claim actual itemized deductions may deduct the following, subject to many conditions and limitations: Medical expenses in excess of 7.5% of adjusted gross income, State, local, and foreign taxes, Home mortgage interest, Contributions to charities, Losses on nonbusiness property due to casualty, and Deductions for expenses incurred in the production of income in excess of 2% of adjusted gross income. Capital gains: and qualified dividends may be taxed as part of taxable income. However, the tax is limited to a lower tax rate. Capital gains include gains on selling stocks and bonds, real estate, and other capital assets. The gain is the excess of the proceeds over the adjusted basis (cost less depreciation deductions allowed) of the property. This limit on tax also applies to dividends from U.S. corporations and many foreign corporations. There are limits on how much net capital loss may reduce other taxable income.
Tax credits: All taxpayers are allowed a tax credit for foreign taxes and for a percentage of certain types of business expenses. Individuals are also allowed credits related to education expenses, retirement savings, child care expenses, and a credit for each child. Each of the credits is subject to specific rules and limitations. Some credits are treated as refundable payments.
Alternative Minimum Tax: All taxpayers are also subject to the Alternative Minimum Tax if their income exceeds certain exclusion amounts. This tax applies only if it exceeds regular income tax, and is reduced by some credits.
Tax returns: Individuals must file income tax returns in each year their income exceeds the standard deduction plus one personal exemption, or if any tax is due. Other taxpayers must file income tax returns each year. These returns may be filed electronically. Generally, an individual's tax return covers the calendar year. Corporations may elect a different tax year. Most states and localities follow the federal tax year, and require separate returns.
Tax payment: Taxpayers must pay income tax due without waiting for an assessment. Many taxpayers are subject to withholding taxes when they receive income. To the extent withholding taxes do not cover all taxes due, all taxpayers must make estimated tax payments.
Tax penalties: Failing to make payments on time, or failing to file returns, can result in substantial penalties. Certain intentional failures may result in jail time.
Tax returns may be examined and adjusted by tax authorities. Taxpayers have rights to appeal any change to tax, and these rights vary by jurisdiction. Taxpayers may also go to court to contest tax changes. Tax authorities may not make changes after a certain period of time (generally 3 years).
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CREDIT CARD 101 The Credit card - You can use a credit card to buy things and pay for them over time. But remember, buying with credit is a loan - you have to pay the money back. And some issuers charge an annual fee for their cards. Some credit card issuers also provide “courtesy” checks to their customers. You can use these checks in place of your card, but they’re not a gift - they’re also a loan that you must pay back. And if you don’t pay your bill on time or in full when it’s due, you will owe a finance charge - the dollar amount you pay to use credit. The finance charge depends in part on your outstanding balance and the annual percentage rate (APR).
Charge card - If you use a charge card, you must pay the balance in full each time you get your statement.
Debit card - This card allows you to make purchases in real-time by accessing the money in your checking or savings account electronically.
The Fine Print When applying for credit cards, it’s important to shop around. Fees, interest rates, finance charges, and benefits can vary greatly. And, in some cases, credit cards might seem like great deals until you read the fine print and disclosures. When you’re trying to find the credit card that’s right for you, look at the:
Annual percentage rate (APR) - The APR is a measure of the cost of credit, expressed as a yearly interest rate. It must be disclosed before your account can be activated, and it must appear on your account statements. The card issuer also must disclose the “periodic rate” - the rate applied to your outstanding balance to figure the finance charge for each billing period.
Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators - called indexes - change. Because the rate change is linked to the index’s performance, these plans are called “variable rate” programs. Rate changes raise or lower the finance charge on your account. If you’re considering a variable rate card, the issuer also must tell you that the rate may change and how the rate is determined.
Before you become obligated on the account, you also must receive information about any limits on how much and how often your rate may change.
Grace period - The grace period is the number of days you have to pay your bill in full without triggering a finance charge. For example, the credit card company may say that you have 25 days from the statement date, provided you paid your previous balance in full by the due date. The statement date is on the bill.
The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers. Instead, interest charges start right away. If your card includes a grace period, the issuer must mail your bill at least 14 days before the due date so you’ll have enough time to pay.
Annual fees - Many issuers charge annual membership or participation fees.Some card issuers assess the fee in monthly installments.
Transaction fees and other charges - Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or exceed your credit limit. Some charge a monthly fee if you use the card - or if you don't.
Customer service - Customer service is something most people don’t consider, or appreciate, until there’s a problem. Look for a 24-hour toll-free telephone number.
Unauthorized charges - If your card is used without your permission, you can be held responsible for up to $50 per card. If you report the loss before the card is used, you can’t be held responsible for any unauthorized charges. To minimize your liability, report the loss as soon as possible. Some issuers have 24-hour toll-free telephone numbers to accept emergency information. It’s a good idea to follow-up with a letter to the issuer - include your account number, the date you noticed your card missing, and the date you reported the loss.Keep a record - in a safe place separate from your cards - of your account numbers, expiration dates, and the telephone numbers of each card issuer so you can report a loss quickly.
CREDIT REPORT FACTS: Since the slightest financial mistake can affect how much credit you qualify for, and the interest rates you will have to pay on your loan, times like these should make you want to monitor your credit more closely. And there are a number of companies out there that offer this service. You can get your credit report from - Equifax®, Experian® and TransUnion®.
Here are some examples of the information credit monitoring services provide that you won’t get on a free credit report: Making sense of reports. Each of the three major credit reporting agencies issue reports in different ways. They can be difficult to understand if you don't have a lot of experience reading credit reports. A monitoring service can help you synthesize that information in a way that's easy to read and decipher.
Access to all agencies in a single report. Not only do each of the major reporting agencies not compile reports in the same way, they also don't necessarily share data. So, while you might not have a blemish on one agency's report, one may appear in a report from a different agency. A credit monitoring service allows you access to reports based on data from all three agencies, so you can check them all for discrepancies. Because of the lack of formatting in the free credit reports, it can be difficult to impossible to compare and contrast the credit reports you receive from the different agencies.
Daily monitoring. Whenever you request a free report, the information you get back reflects your financial situation as it stands at the time of your request. So, where a one-time free credit report provides a snapshot in time of your credit history, credit monitoring gives you a more complete, moving picture. As you work toward improving your credit rating in order to make a major purchase, you can keep track of your progress and apply for financing when you feel most comfortable.
Alerts. In addition to giving you daily updates on your credit, you can and should pick a credit monitoring service that will alert you if certain changes are detected in your credit report. That way, if you become a victim of identity theft or other related fraud, you have the ability to deal with it immediately and keep your credit in good standing.
The bottom line is that by spending a few dollars to monitor your credit, you may end up saving yourself a significant amount of money in the long run because you'll be able to get a better interest rate on a mortgage or large loan. You also will have the added benefit of knowing when your credit has been compromised.
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DO YOU KNOW THE THREE C'S OF CREDIT EVALUATION? CAPACITY This refers to the amount of debt you can realistically pay given your income. Creditors look at how long you’ve been on your job, your income, and the likelihood that it will increase over time. They also look to see that you’re in a stable job or at least a stable industry. So when you fill out a credit application, make your job sound as stable and high-level as you honestly can. Are you a secretary, or are you an “executive assistant” or “office manager”? Present yourself in the best possible light, but don’t mislead or lie. Because employment history and income may not be included in your credit report, creditors may get that information from you, your records, and your employer.
Creditors do use your credit report to examine your existing credit relationships, such as credit cards, bank loans, and mortgages. They want to know your credit limits (you may be denied additional credit if you already have a lot of open credit lines), your current credit balances, how long you’ve had each account, and your payment history-whether you pay late or on time.
COLLATERAL Creditors like to see that you have assets they can take if you don’t pay your debt. Owning a home or liquid assets such as a mutual fund may offer considerable comfort to a creditor reviewing an application. This is especially true if your credit report has negative notations in it, such as late payments. A credit report won’t tell a creditor what assets you own. Of course, if your mortgage payments are reported, the creditor will know that you own a home and how much you owe on the mortgage.
CHARACTER Creditors develop a feeling of your financial character through objective factors that show stability. These include the length of your residency, the length of your employment, whether you rent or own your home (you’re more likely to stay put if you own), and whether you have checking and savings accounts. Credit reports will tell creditors how long you have maintained credit accounts and how long you have lived at your current address, and they may have employment information. Some specialty credit reporting agencies include information on whether you have bounced checks.
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UFREETV.COM™ encourages you to learn all the details of your financial contracts before signing any documents or making any decisions.
For people who fly Delta Airlines this is the perfect card to have in their wallet. This is also a great starter card for a people new to credit cards. It offers 30,000 Delta SkyMiles when you reach the really low minimum spend of $500 in the first three months. There’s also no first year fee and some great benefits for Delta-flyers. The perks available to SKYMILE credit card holders can save you money.
DELTA SKYMILES CARD DETAILS: The Sign-Up Bonus The 30,000 SkyMiles bonus is a great deal, especially considering the low minimum spend of $500. With 30,000 miles you can buy a round-trip economy ticket to anywhere in the Continental U.S., Alaska or Canada. So after spending $500, you’re essentially getting a free ticket.
If you’re looking for a card without a minimum spend requirement, American Express also offers a Platinum Delta SkyMiles card where you get 20,000 miles on first purchase and 5,000 miles when you add two additional card users to the account. However, there’s a $150 annual fee.
Earning Miles You’ll earn two miles for every dollar you spend on Delta purchases and one mile for everything else.
Award Tickets Delta has three different levels of award availability: low, medium, and high. The difference in mile cost between the three is more than double. A one-way economy ticket within the Continental United States, Alaska, or Canada costs 12,500 miles in a low-availability fare; a one-way ticket in high availability costs 30,000 miles.
In most instances, low-availability award seats are released when there are a lot of open seats left on a flight. So they’re usually only available within a month of the actual flight time. If, for instance, you wanted to book a flight to Cleveland six months out, you most likely wouldn’t find a 12,500 mile seat. If, however, you’re an adventurous type and you want to hop right on a flight to Nova Scotia tomorrow, you’ll have a much better shot at those low availability seats.
AWARD TICKET COSTS DETAILS: Pay with Miles Alternately you can use your miles to pay for flights marked as “Pay with Miles eligible” when you’re logged into delta.com with your SkyMiles account. The redemptions are based on the cost of the ticket.
The redemption schedule is slightly complicated, but here are the basics:
• All fares under $100 cost 25,000 miles. • For fares between $100 and $250, you can get $100 off the total cost if you redeem 10,000 miles; if you want to cover the full cost, the redemption increases to 25,000 miles for the first $100 of the flight plus 5,000 miles for each additional $50. • For fares between $250 and $1,000, you’ll need to redeem 10,000 miles for the first $100, then 5,000 miles for each additional $50. • For fares that cost $1,000 and above, you’ll need to redeem 10,000 miles for the first $100, then 10,000 miles for each additional $100.
SkyTeam Delta is a part of SkyTeam. That means your SkyMiles can be redeemed with any one of the SkyTeam airlines, including AeroMexico, AirFrance, Alitalia, KLM, and Korean Air.
Priority Boarding One of the great perks of having this card is priority boarding on Delta flights. You’ll board in Zone 2, which means you’re going to get on the plane quickly enough for you to find a spot for your carry on.
First Bag Free Another great perk is that your first checked bag on Delta flights is free. This can extend up to nine people on the same reservation. Each first-checked bag on domestic flights costs $25, so with a family of four going to Disneyworld, that’s a $200 round-trip savings.
In-Flight Savings All Delta in-flight food and entertainment is 20% off. So if you want to buy a movie or a chicken sandwich, you’ll save 20%.
Customer Support American Express has phenomenal online customer support and average over-the-phone support.
Foreign Transaction Fees American Express has a 2.7% fee.
Business Card There is also a Gold Delta SkyMiles Business card available. You can see my review here.
Credit card interest is the main way in which credit card issuers generate revenue. A card issuer is a bank or credit union that gives a consumer (the card holder) a card or account number that can be used with various payees to make payments and borrow money from the bank simultaneously. The bank pays the payee and then charges the cardholder interest over the time the money remains borrowed. Banks suffer losses when cardholders do not pay back the borrowed money as agreed. As a result, optimal calculation of interest based on any information they have about the cardholder's credit risk is key to a card issuer's profitability.
Before deciding what interest rate to offer, banks typically check national, and international (if applicable), credit bureau reports to identify the borrowing history of the card holder applicant with other banks and conduct detailed interviews and documentation of the applicant's finances.
Annual percentage rate is the principal means of comparing credit products. Because interest is compounded on a periodic basis (daily or monthly), to calculate charges on a credit card account the APR has to be de-compounded. Most major banks use the following methodology:
Increase the figure to the highest possible value while still meeting advertising requirements. e.g., if a card is advertised at a percentage rate of 17.9, then any value up to 17.949% will still be rounded down to 17.9%, and thus still be correct. Once this number has been derived, it must be converted to a decimal multiplier - in this case the number would be 1.49575%. This is a monthly periodic rate derived by dividing the APR by 12. This number will provide you with a rate which, when compounded over a year, will equal the EAR.
At this point, it is important to round down - because the APR has already been maximised in order to make use of the highest rate possible, rounding any figures up might push the APR over the edge and onto a higher rate, leaving the card issuer liable for false advertising claims.
This method is subject to change, depending on the bank in question, and is highly influenced by cardholder perceptions and bank strategy, sometimes with a value of simplicity for cardholders; other times with the effect of obfuscating the true interest rates charged.
Methods vary by country because of customs and laws. A brief summary of each of the four methods given under U.S. Regulation Z follows. This list is followed by a few examples from other countries and some discussion of differences between the various methods:
Average daily balance The sum of the daily outstanding balances is divided by the number of days covered in the cycle to give an average balance for that period. This amount is multiplied by a constant factor to give an interest charge. The resultant interest is the same as if interest was charged at the close of each day, except that it only compounds (gets added to the principal) once per month. It is the simplest of the four methods in the sense that it produces an interest rate approximating if not exactly equal the expected rate.
Adjusted balance The balance at the end of the billing cycle is multiplied by a factor in order to give the interest charge. This can result in an actual interest rate lower or higher than the expected one, since it does not take into account the average daily balance, that is, the time value of money actually lent by the bank. It does, however, take into account money that is left lent out over several months.
Previous balance The reverse happens: the balance at the start of the previous billing cycle is multiplied by the interest factor in order to derive the charge. As with the Adjusted Balance method, this method can result in an interest rate higher or lower than the expected one, but the part of the balance that carries over more than two full cycles is charged at the expected rate.
Two-cycle average daily balance The sum of the daily balances of the previous two cycles is used, but interest is charged on that amount only over the current cycle. This can result in an actual interest charge that applies the advertised rate to an amount that does not represent the actual amount of money borrowed over time, much different that the expected interest charge. The interest charged on the actual money borrowed over time can vary radically from month-to-month (rather than the APR remaining steady). For example, a cardholder with an average daily balance for the June, July, and August cycles of $100, 1000, 100, will have interest calculated on 550 for July, which is only 55% of the expected interest on 1000, and will have interest calculated on 550 again in August, which is 550% higher than the expected interest on the money actually borrowed over that month, which is 100.
One of the most important things to understand about your credit card is its interest rate.
An interest rate is the price you pay for borrowing money. For credit cards, the interest rates are stated as a yearly rate, called the annual percentage rate (APR).
On most cards, you can avoid paying interest on purchases if you pay your balance in full each month.
One credit card may have several APRs. Here are some common APR terms you should know:
Different APRs for different types of transactions. Your credit card will always have a purchase APR--the amount of interest you will pay on purchases. For many cards, you only have to pay interest on purchases if you carry over a balance. Your card likely will also have a different--often higher--APR for cash advances or balance transfers.
Introductory APR. Your card may have a lower APR during an introductory period and a higher rate after that period ends. Under Federal law, the introductory period must last at least six months, and the credit card company must tell you what your rate will be after the introductory period expires. For example, your introductory rate may be 8.9 percent for six months and then go up to 17.9 percent.
Penalty APR. Your APR may increase if you trigger one of the penalty terms, for example, by paying your bill late or making a payment that is returned. Typically, your APR(s) will be fixed or variable:
A Fixed-rate APR is set at a certain percent and cannot change during the period of time outlined in your credit card agreement. If your company does not specify a time period, the rate cannot change as long as your account is open.
A Variable-rate APR may change depending upon an index that is outside of the credit card company's control, such as the prime rate or Treasury bill rate. The credit card application and agreement will tell you how often your card's APR may change.
Card issuers may offer combinations of fixed and variable rates--for example, a fixed-rate APR that becomes a variable rate after your introductory period ends. Read your credit card agreement carefully to understand when or if your APR may change.