Home equity is the difference between the property value and what you owe on your mortgage. For example, if your property value is $2,50,000 and your mortgage balance is $1,50,000, then it means that you’ve a equity of $1,00,000 in your property. As you pay off the mortgage every month, your home equity will get increased.

Why is home equity tapped?
Home equity loans as well as home equity lines of credit have been used by the borrowers to fund property improvements. Such improvements include remodels and additions. A large number of people also tap their home equity in order to pay off their bills or consolidate their unsecured debts.

How can tapping equity affect the borrower?
Most of us find it very appealing to tap the equity in our homes to pay off other debts. Such loans are available at a lower interest rate compared to a credit card. Moreover, unlike credit cards, home equity loans are tax deductible. However, tapping home equity loans may have a negative impact on the borrower. It won’t help you in eliminating your debt. Rather, you’re jeopardizing your home for paying off the unsecured debts. Unlike credit card debts, a home equity loan will put your house at risk as it is a secured loan.

Thus, you should only go for a home equity loan to pay off your unsecured debts when you’re sure that you’ll be able to pay off your equity loan. If you’re unable to do so, your property will be foreclosed which will have greater negative impact on your credit report compared to credit card debts.

In a recent announcement, the IRS has announced that it will reduce the number of liens that it would place on property which are owned by people who are unable to pay their taxes. The IRS will also make it easier for taxpayers to get their existing liens withdrawn.

What is a tax lien?
A tax lien can be defined as a lien which is placed by law on a property in order to obtain the payment of delinquent taxes. A federal tax lien helps the IRS to claim a taxpayer’s property for the amount of an unpaid tax debt. A tax lien will reduce the taxpayer’s credit score significantly. It will be difficult for the person to sell the home unless the lien is paid off.

Why has the IRS become lenient on liens?
Since the start of the recession, tax liens have become very common. It has been increased by 60%. The IRS has decided to go lenient as it makes it quite difficult for any person to find a job, or get a mortgage or buy insurance if they have a tax lien on their property.

What changes have been introduced by IRS?
The changes that have been introduced regarding the lien filing practices include the following:

• Easy to obtain lien withdrawals after paying the delinquent taxes.
• Increase the dollar threshold when liens are issued leading to fewer tax liens.
• Easy access to Installment Agreements for small businesses.
• Remove the liens when the taxpayer enters into a Direct Debit Installment Agreement.
• Expand the streamlined “Offer in Compromise” program to include more taxpayers.

This is an important step in the right direction taken by the IRS. Let’s hope that these steps finally have a positive impact on the economy.

The year 2011 is already 2 months old now. Many of us have taken a resolution of building up some wealth this year. Most of us now agree that it is very important to get rid of our debt and increase our income or build some financial security.

Here are 5 ways in which you’ll be able to build up your credit:

1. Get rid of high interest credit cards: In order to build wealth, you should make sure that you reduce the money that you pay off as interest payments. Thus, you should get rid of your high interest credit cards. You should draft your own personal spending plan with the help from a certified credit counselor. If you’re able to stick to that plan, it will be easier for you to begin the process for building wealth.
2. Fund your retirement: If you save 2% of the money which you pay in Federal Insurance Contributions Act. You should use this extra money to fund your 401k account. You can speak to your human resource department and change the deductions. Thus, you’ll be able to save a little more than you normally do.
3. Invest money in mutual funds: Investing money in low-cost mutual funds is considered to be one of the best ways to build wealth. However, there is always a risk of losing money in stocks. So, you should take professional help in order to invest money in mutual funds.
4. Take out a mortgage: Buying a home is also a good way of building wealth. Mortgage is known as good debt. The mortgage rates are going quite low. You can invest your money in it and also live in the property. You won’t have to rent a property and drain your money as rental payments. Moreover, with time, you will build up equity in your property. Thus, you can cash in the equity in the form of cash out refinance whenever you require it.
5. Start a business of your own: Using your free time to start a side business will help you in building your wealth. You should choose such a field which you’re passionate about so that you can give time to it after your job gets over. This is a good option for the unemployed people as well.

In order to trim down the debt of $3.8 trillion dollars, National Commission on Fiscal Responsibility and Reform is thinking of reducing income tax deduction for mortgage interest payments. The Commission is planning to eliminate second homes, mortgages of more than $500,000, and home-equity loans from receiving any kind of tax deductions.

If thus new rule is passed into law, it will affect the mortgage market in a negative way. Lets take a look:

• With an unemployment rate of 21%, the new rule will lead to a further downfall of the housing market.

• Reducing or ending deductions may further lower the home prices leading to an increase in number of underwater properties.

Most experts are concerned about the federal deficit but also believe that reducing or ending mortgage interest deductions will have negative affect on the consumers. Most of them believe that limiting deductions is a good idea but it will result in lower home prices. Thus, it’s better to not implement this new rule unless the market becomes stable.

In an attempt to reduce scams and frauds, the Federal Trade Commission (FTC) is making stricter rules for companies and attorneys who help borrowers to get loan modification or other foreclosure-rescue services.

The new rule…
The highlights of the new FTC rule are as follows:

Fees: According to the new rule, mortgage-relief companies won’t be able to collect fees from consumers until they have a written offer from the lender and decide that the offer is acceptable to them.

Restrictions for attorneys: Henceforth, even attorneys won’t be able to collect upfront fees from the consumers. Rather, the attorneys will have to create client trust account and place the advance fees in it. This will help the attorneys to keep their business finds and the clients’ funds as separate.
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While participating in the forum discussions, I find that a large number of people face financial dangers due to various decisions they take. However, women are more prone to these dangers.

Let’s take a look as to why they are more prone to such dangers.

1. Less knowledge about finance: In a recent research, it has been found women are less likely to understand the stock and bond markets and risk diversification than men. As a result, they are unable to invest in stocks and bonds in order to take advantage of the benefits and earn profit.

2. Women earn less than men: It is a fact that women earn about a third less than men. As a result, they make smaller contributions toward Social Security and pensions. Also, they have less cash available to put in their 401(k) accounts.

3. Motherhood and care giving: Many women leave jobs in order to take care of their children or aging parents. As a result, it interrupts their contribution to their Social Security and pension accounts. Thus, they save less for their retirement.

4. Pensions: There are very few women who get pensions. The number is as low as 29%. This is one of the major reasons why women are more prone to financial dangers as they do not have any retirement savings to fall back on.
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The holiday season is not far away. It’s the middle of October and you must be thinking how you can save money for the upcoming holiday season so that you can shop well. Here are 5 ways which can help you save money:

1. Go for cheap and basic cable TV package: Many of use go for the premium cable TV package which can cost us around $80 extra every month. It’s better to go for the cheap and basic cable TV package for the next two months which will help you save quite some dollars which you can invest in shopping and buying goodies for your near and dear ones.

2. Increase your auto insurance deductibles: You can increase your auto insurance deductibles to $1,000 or even $2,500 from $500. This will help you reduce your premiums by 12% to 18%. It’ll help you in saving money when you pay your insurance premiums.
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With the constant increase in cost of living and unemployment rates, it has become quite difficult for people to maintain their lifestyle. However, if we can make certain changes in our daily life, it’ll help us in saving quite a large sum of money. For example if we can make some small changes in our daily life to make our home more energy efficient, it’ll in turn reduce the utility bills for years to come.

Here are 5 tips that can help you in reducing your utility bills:

1. Upgrade your appliances as and when required: There are a number of utility companies which offer financial incentives to the homeowners so that they can upgrade their appliances to newer and more energy-efficient models. The homeowners, who can provide proof of purchase, will receive these incentives in the form of rebate checks.
2. Save energy at night: Most of us have the habit of leaving the fans, lights or other appliances on at night while we sleep. If we want to save on the utility bills, we have to change this habit. Make sure all your electric devices are turned off before you go to bed.
3. Seal the cracks: Don’t neglect the cracks or small leaks that you find in your property. You can use inexpensive expanding foam to seal the cracks around windows and door-frames, around the top of the basement wall (rim joist) or round the holes in walls where pipes enter and exit the home. This will help you avoid cold or warm air to escape from your property. (more…)

A large number of homeowners are in a dilemma to take an investment decision with their extra cash. They cannot decide whether they should pay down their mortgage or take advantage of the low rates and invest the money in stocks.

Well, there can’t be a straight forward answer to this. It will completely depend upon the individual in order to determine which will be more advantageous to him/her – pay down mortgage or invest in stocks. While doing so, the individual should keep in mind the mortgage rates, mortgage interest deductions, etc. The age and financial goals of the individual will also play an important role in this regard.

So, what things should you consider when you take the decision? Let’s take a look:

Young homeowners who are just starting out

If you’re a young homeowner and if you’re fortunate enough to have extra cash, then you can think about investing the money for better returns in stocks. You won’t have to support the education of your children. Thus, due to your age, you may think about taking risky investment. But if you haven’t yet paid off your student loans, then it will be better to pay off the student loans with the extra cash. Also, you may use the extra dollars to create an emergency fund rather than paying off your mortgage.
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The Federal Housing Administration (FHA) has come up with a new low cost reverse mortgage product which will be known as “HECM Saver“. In the HECM Saver program, the upfront mortgage insurance premium (MIP) that will be charged to the borrowers will be 0.01% compared to 2% MIP that is charged on normal HECM product.  The product will also have an annual MIP of 1.25%.

Opinion of experts on impact of HECM Saver on market…

The HECM Saver will be rolled out in the coming weeks but no one is sure what sort of impact this program will have on the market. With reverse mortgage volume down by 40% during the first and second quarters of 2010, it is expected that as the upfront MIP will be lowered, the number of reverse mortgages borrowers will increase to some extent.

Mortgage experts hope that HECM Saver will reach borrowers with low or no mortgage balance who normally go for HELOC to satisfy their other financial needs.  Senior citizens have always tried to tap their home equity through reverse mortgage, but the upfront costs of the HECM had made things difficult for them. With the coming up of HECM Saver, a large number of seniors will be interested to go for it.

Opinion of borrowers on impact of HECM Saver on market…

According to a poll conducted among borrowers, a large number of respondents have agreed that HECM saver will boost reverse mortgage volume and broaden the mortgage market. However, there were some respondents who were of the opinion that it won’t have much impact on the borrowers.

Challenges that reverse mortgage lenders may face…

The HECM Saver will pose challenges to reverse mortgage lenders because they will earn less revenue through each transaction compared to what they received in the traditional HECM product.

Unless the HECM Saver rolls out into the market, it’ll be difficult to know how it’ll affect the mortgage market and the borrowers. We can just hope for the best.