Each year, more than 1.5 million taxpayers obtain refund anticipation loans (RALs). This year, the number may be higher as a result of the government shutdown. While, RALs provide faster access to your money, they come with high fees and should only be used as a last resort. These “cash advances” are a potential for scams; before using these loans, take these actions:
Assess the cost. While some national tax chains promote this service as a “free” cash advance, fees may apply for applying for the advance, checking your credit, and transferring the money to you. Costs for your refund advance check range from $29 to $65. If your refund is on a prepaid debit card, there will likely be additional fees.
Beware of loan terms based on timing. Additional charges may occur if your refund is delayed.
Compare other options. Seek less expensive, small-dollar, short-term loans from a community bank or credit union, or a zero-percent credit card. A $35 charge to defer a $350 tax preparation fee for two weeks has an APR of 174 percent.
To avoid late fees for bills, contact your creditors. Utility companies and medical providers may offer no-cost extensions or no-cost payment plans.
Always be sure you are doing business with a reputable tax preparer. Check credentials and references. Avoid tax preparers who charge fees based your refund amount, or who deposit your refund in their bank account. Another fraudulent activity is filing false information to increase the amount of the refund.
For additional information on tax refund advances,click here.
Have students search online for costs for refund anticipation loans.
Have students prepare a video presentation on avoiding refund anticipation loans.
What advice would you give a person planning to obtain a refund anticipation loan?
How might community organizations and government agencies assist people who are considering a refund anticipation loan?
While you might think that saving for college, retirement, or buying home are the reasons Americans save, according to a recent survey, travel was reported as the top priority. In a study of 2,500 adult Americans representing varied demographic, geographic, economic, and social groups, 45 percent of respondents set aside money for traveling. This was especially true among younger respondents, who prefer travel experiences over savings to buy a home.
After travel, the main priorities for saving by Americans are:
for an emergency fund (37 percent)
for retirement (30 percent)
to buy a house (21 percent)
to buy a car, truck or motorcycle (20 percent)
For additional information on saving priorities, check out these two resources:
While home ownership is often promoted as part of the “American Dream” and a sound financial decision, another point of view might be considered. Home ownership may not be for everyone when considering these drawbacks:
Home ownership can be a money drain. Mortgage payments and other costs, such as property taxes, maintenance, repair, insurance, and utilities can add up to a significant portion of a household budget.
The mortgage tax deduction may not be worth it. If you do not itemize on your taxes, you will not get the benefit of this deduction.
Consider the “rent-price ratio.” This analysis is determined by dividing the average home sale price by the average annual rent. A ratio of 1 to 15 is considered a range when it is better to buy than rent. Between 16 to 20, you are getting in to risky buy territory. Over 21, it may be better to rent than buy. Be sure to also consider how much space you need. Homes are usually larger than apartments.
People often buy a larger house than needed, resulting in higher mortgage, insurance, energy, and maintenance costs as well as higher property taxes.
For additional information on the financial drawbacks of home ownership, click here.
Have students ask homeowners for suggestions they would offer to people planning to buy.
Have students create a financial analysis comparing renting and buying for comparable housing.
What factors might you overlooked when deciding to buy a home?
How you decide whether to rent or buy your housing?
While more people are renting in recent years due to various economic and household situations, home ownership is still a financial goal for many. A financial comparison between renting and buying often overlooks various factors. An online calculator may be used to consider buying items such as the opportunity cost of investing your down payment (along with the taxes on capital gains), condo or home association fees, maintenance costs, and, of course, the tax benefits of property taxes and mortgage interest. On the rental side, the calculator considers initial costs (such as a security deposit and any broker’s fee) along with the opportunity costs of the initial costs and recurring costs, such as renter’s insurance.
For additional information on calculating the renting vs. buying your home, click here.
Have students ask people to describe factors that affected whether they own or rent their housing.
Have students conduct a personal financial analysis for renting and buying a place to live.
What are benefits and drawbacks of renting and buying a place to live?
Describe financial factors that might be overlooked when comparing renting and buying a place to live.
The most popular reverse mortgage program is the Home Equity Conversion Mortgage (HECM), which is insured by Housing and Urban Development (HUD).
New rules from HUD add protections for certain surviving spouses after the death of a reverse mortgage borrower. Until recently, if the non-borrower spouse was not on the loan, he or she was not entitled to remain in the property following the death of the borrower. But under HUD’s new rules, non-borrowing, surviving spouse can remain in the home if specific conditions are met. These changes apply to reverse mortgage loans in which the borrowing spouse applied for a reverse mortgage before August 2014. In addition, the couple must have resided in the property as their principal residence throughout the duration of the HECM, and taxes, property insurance and any other special assessments that may be required by local or state law must have been paid.
The concern regarding non-borrowing spouses has been a source of many reverse mortgage issues. Here’s why: The amount of money a reverse mortgage borrower can draw is based in part on the age of the youngest borrower—and unless all borrowers are 62 or over, they would not qualify for a reverse mortgage.
Ask students to comment on the statement: “While a reverse mortgage can be used to supplement monthly income, some borrowers may face unintended obstacles and consequences”. What might be those consequences?
Are the new rules from HUD effective in protecting senior citizens? Why or why not?
Why should you talk to a qualified professional before deciding to get a reverse mortgage?
Where can you find HUD-approved HECM Counseling Agencies near you?
Reverse mortgages are a special type of loan that allows homeowners, 62 and older, to borrow against the accrued equity in their homes. Reverse mortgages can help some older homeowners meet financial needs, but they can jeopardize retirement security if not used carefully.
In February 2015, the Consumer Financial Protection Bureau (CFPB) released a report that some homeowners have experienced problems with reverse mortgages. The most common reverse mortgage complaint is about difficulty with changing the loan terms and problems communicating with loan servicers. Some consumers, for example, express frustration about slow, inconsistent communication from their reverse mortgage loan servicer.
If you are having a problem with your reverse mortgage or having problems getting through to your mortgage servicer, you can submit a complaint to CFPB online or by calling (855) 411-2372 or TTY/TDD (855) 729-2372. The CFPB will forward your complaint to the company and work to get you a response within 15 days.
Many home buyers do not shop around for a mortgage. Failing to comparison shop for a mortgage often means higher monthly payments and paying thousands of dollars more in interest over the life of the loan. A recent survey of mortgage borrowers revealed that:
Nearly half of borrowers only consider one lender or broker before applying for a mortgage.
Over three-fourths of borrowers only apply to one lender.
Lenders and brokers were the most common mortgage information source; with real estate agent also used. Other source of information were websites, financial and housing counselors, friends, relatives and coworkers.
Home buyers should complete an application with multiple lenders or brokers in an effort to get a better deal. Also, ask questions and take actions to help you find the best mortgage for you
For additional information on comparing mortgage rates, click here:
“Interest rates have bounced around historical lows for years, yet a surprising number of homeowners who could benefit from a refinancing still haven’t taken advantage of the potential cost savings.”
In this article, Marine Cole points out some surprising facts about interest rates and the reasons why people don’t refinance their homes. According to Ms. Cole and other experts, some people are simply unaware of their current rate or don’t have the get-up-and gumption to refinance. Other factors include procrastination, mistrust, and the inability to understand complex decisions may also be barriers to refinancing.
The article also points out that the decision to refinance could result in thousands of dollars in savings for the homeowner. For example, refinancing a 30-year, $200,000 mortgage from 6.5 percent to a current rate of 3.35 percent will save approximately $130,000 in interest payments over the life of the loan.
You may want to use the information in this blog post and the original article to
Stress the importance of making sound financial decisions not only when buying or refinancing a home, but other aspects of your financial life.
Discuss the reasons mentioned in this article that describe why people would not refinance and take advantage of lower interest rates for buying or refinancing a home.
How important is comparing interest rates when either purchasing a home or refinancing an existing home mortgage?
According to this article, there are many reasons why people don’t refinance their home. If you were refinancing a home mortgage, what would be your major obstacle to refinancing an existing home mortgage? How could you overcome this obstacle?
Assuming you had a chance to refinance your home and save $100,000 over the life of the loan, would you refinance? Explain the factors that would influence your decision.
“Get out of debt the same way you learned to walk–one step at a time.”
This article describes Dave Ramsey’s seven steps that anyone can take to get out of debt and begin to manage their personal finances. These seven basic principles have been taught by Mr. Ramsey via radio, books, Financial Peace University, live events, and online. Listed below are the seven steps discussed in this article. Note: You can get more information about each step by clicking on the “Learn More” tab.
Begin by creating a $1,000 emergency fund.
Pay off all debt using the debt snowball .
Save 3 to 6 months of expenses in a savings account.
Invest 15 percent of household income into Roth IRAs and pre-tax retirement accounts.