Asset Planning, Inc Blog

Yesterday, the Federal Reserve announced its plan to buy up to $300 billion of long term government bonds and $750 billion in additional mortgage-backed securities plus they are keeping the federal funds rate between 0% and .25%.  This is likely to produce a drop in mortgage rates.  The rates today are under 5% and might go to 4%.

What does this mean?  Basically, if you have a good job, solid credit and you have 20% equity in your home you should consider refinancing.  You need to consider how much it would cost to refinance – points paid, appraisal fees, title insurance, etc. vs. how much you would save in the long run.  How much longer is the term on your current home? Does it make sense to start a new 30 year term loan?  Every situation is unique.  For example, it makes sense for me.  My current loan is only 3 years old and if I just refinance my current balance (and not take any cash out) I will lower my monthly payments by $1,000/month.  The extra cash flow will be great as my expenses will be increasing as my children get older and enter college in the next few years.  Every situation is unique and should be evaluated as such.

This also is a good time for 1^st time home buyers to take advantage of the low rates and the $8,000 tax credit.  The criteria for getting a loan is much harder because the banks learned their lesson and don’t want to be stuck with bad loans.  This is good because that should keep home prices from rising as dramatically as they did from 2004-2007.  Prices should rise gradually now.

This action by the Fed will also likely weaken the dollar and increase inflation in the future.  Commodity prices will likely rise as investors anticipate the rise in inflation.  Prices for gold and crude oil have all risen sharply since the Fed announcement.

As I write this I don't know all the details of the budget that was passed by the State Legislature but here are the major provisions:
California will now have the highest sales tax in the nation. The state hopes to generate up to $13 billion in revenue by raising sales taxes one percentage point. That means Orange County will have a 8.75% sales tax rate and Los Angeles County will be 9.25%. This will probably lead to more on-line purchases. If an on-line company does not have a brick-and-mortar presence in California then they do not have to collect sales tax.

The budget also adds a surcharge on state income taxes of .25% and that would drop to .125% once California gets its share of the Federal Stimulus money. Currently, California has a top income tax rate of 9.3% - one of the highest in the nation. The new budget also increases the vehicle license fee from .65% to 1.15%. I think this will lead to more retirees to flee California to states with no income tax like Nevada and Florida.

The budget also has $15 billion in spending cuts of which $8.6 billion is in education. To save $1.4 billion from state payroll costs, the government will eliminate 2 state holidays, change overtime rules and furlough workers at least one day a month.

The final budget does NOT have a 12-cent-a-gallon hike in the gas tax. That was the compromise that was reached to get the one vote needed to pass the budget.

We just want our clients to know that if you ever need a monthly statement or tax report from TD Ameritrade or Charles Schwab you can contact us or you can go on the TD Ameritrade or Charles Schwab websites and download the statements yourself. If you do not have a log on id for your accounts, please contact me (carols@assetplanninginc.com) and I will set you up for on-line viewing. The month end statements are usually available on-line 3 days after the month end. Normally this is not an issue, but it is tax season and we know you need your statements promptly. Also, if you do not feel comfortable doing this yourself, we can download the statements or reports for you and email, fax or mail them to you.

Many homeowners were shocked to see an increase in their property tax bills from last year, given the widespread drop in housing prices. Most homeowners saw their bills increase because the assessed value of their property is often different than the market value. This is due to Proposition 13 which rolled property assessments back to 1975 levels and capped the annual increase at 2 percent. A property can be reassessed if it changes hands or the living area is enlarged. Under Proposition 8 – (a 1978 initiative, not this years gay marriage initiative)- counties are required to reassess a property when the market value falls below the assessed value, but many times it is not automatic.

If you purchased your home when prices were much higher, chances are your assessed value is much higher than the current market value. Every county assessor's office offers a process to appeal your property assessment. The Los Angeles County website is: www.lacountypropertytax.com and the Orange County website is www.ac.ocgov.com/newpage/taxinfo.asp Theses websites are very helpful and have the forms and instructions for you to follow.

BEWARE: There are private companies posing as government agencies offering to lower their property tax for a fee. This is a SCAM, there is no fee for the county to review the appeal application.