Mortgage Rate Forecast: December 2007

Here are 8 financing tips:

1. Don't Stretch Your Loan Qualification Limits to Buy a Home Beyond Your Budget
   
   Living poor just to own a bigger or better home, makes for larger mortgage payments and risks difficulties in the future.
   
   
2. Get a Written Confirmation of Your Locked-In Interest Rate and Interest Rate Terms
   
   
3. Understand All the Conditions of Your Loan
   
   You or a professional that you trust should thoroughly scrutinize each document.
   
   
4. Understand the Unique Terms of Your Loan
   
   There are many types of mortgage loans out there. Make sure you understand the details of your particular type of loan.
   
   
5. Pick the Right Kind of Loan
   
   Rates are higher on 30 year loans than on comparable 15 year loans. That's because there is a greater risk that rates will go up the longer the lender commits to a fixed rate.
   
   
6. If You're Buying Rather Than Refinancing, Consider Getting a Pre-approved Mortgage or Contingent Loan Approval Letter
   
   The former is a binding commitment for a loan up to a certain amount. It can strengthen your negotiating position with the seller, but it puts pressure on you to close a deal before the loan commitment expires.
   
   
7. Save Everything
   
   Keep copies of everything you send the lender and everything the lender sends you.
   
   
8. Take Advantage of the Deduction
   
   The mortgage interest deduction is one of the few remaining tax deductible interest payments, and it's also the cheapest form of long term financing.

An interest-only loan is one that gives you the option of paying just the interest, or the interest plus as much principal as you want, in any given month during an initial period of time after your closing.

Instead of paying back part of the principal (the loan amount) each month plus interest charges-the most common way mort gages are repaid-these loans require the borrower to pay only the interest for the first five or 10 years. After that, the borrower must either pay the loan off entirely or start paying both principal and interest monthly for the remaining period, perhaps 20 to 25 years.

Interest-only loans have been growing in popularity, especially in the "hot" housing markets, because they enable consumers to "buy up" by paying only the interest portion of the loan in the early years. The loans, which once were aimed at a small pool of affluent borrowers, have gone mainstream.

But the potential risks could be significant, especially if the interest rate on the loan goes up and the required payments of both principal and interest are well beyond the consumer's ability to pay each month.

In general, an interest-only loan may be appropriate for someone whose initial income is somewhat low but is likely to rise quickly in the future. The loans generally are not suitable for a home owner who plans to live in the house beyond the interest-only period (more than five years) and doesn't expect increases in income to rise rapidly enough to cover the higher monthly payments.

Before applying for an interest-only loan, be sure to understand the risks. None of the monthly payment counts toward the actual cost of the home. At the end of the interest-only period, the borrower still owes the full amount of the original loan.

Conversely, an interest-only loan can have certain advantages. Monthly payments are smaller than in traditional mortgages. Some borrowers use the savings for other investments, and the entire payment is tax deductible.

Your loan agent can help you determine if an interest-only mortgage loan is right for you.

Interest rates are based on numerous economic, financial and credit based factors that adjust daily. In addition, lenders can vary on qualification criteria from program to program. If you like the rate today, the safe bet is to lock. Even if rates improve, they wouldn't improve enough in the short term to make you cry about it. But if you are an ardent market bear, and accept the risk of negative mortgage headlines, and believe the economy will just get more bad news next week, and you have the money to risk, you may benefit from floating. Just remember, it always seems more painful to have not locked when you should have as opposed to locking and then watching rates get a little better.

Interest rates are based on numerous economic, financial and credit based factors that adjust daily. In addition, lenders can vary on qualification criteria from program to program. If you like the rate today, the safe bet is to lock. Even if rates improve, they wouldn't improve enough in the short term to make you cry about it. But if you are an ardent market bear, and accept the risk of negative mortgage headlines, and believe the economy will just get more bad news next week, and you have the money to risk, you may benefit from floating. Just remember, it always seems more painful to have not locked when you should have as opposed to locking and then watching rates get a little better.

The Bush administration's recent move to freeze certain sub-prime mortgage rates is only one of several signs that we may have hit bottom, and are poised for recovery - a slow recovery - but a recovery none the less.  You have to read deeper than the first paragraph to see how this will help, but it's there.  Stemming the foreclosure tide, at least a little, will keep some of these homes off an already crowded listing market.

Another sign of future recovery will be this week's rate cut, assuming that it happens.  While the overnight lending rate cuts doesm't have immediate ramifications on mortgage interest rates, they do have a trickle down effect within the economy from everything from credit card rates, to car payments, and eventually mortgage rates.  This usually takes about six months to really emerge (can anybody say Feb-Mar 2008, just in time for the spring buying season?).

A third indicator, and the one that will do the most good, will come when the press starts to talk about how there are plenty of housing bargains out there. As soon as this happens, buyers will emerge and start the pendulum back to the positive side.

You can deduct certain expenses if your home office is the principal place where your trade or business is conducted or where you meet and deal with clients or patients in the course of your business. Your home office will qualify as your principal place of business if you use it exclusively and regularly for the administrative or management activities associated with your trade or business. There must be no other fixed place where you conduct substantial administrative or management activities.

Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.

Here are some basic facts to consider if you work at home:

• A home office may qualify for deductions if you use it for administrative or management activities of your trade or business if there is no other fixed location to conduct such activities.
• The home office deduction is available to you whether you rent or own.
• If you rent, figuring your home office deduction is relatively simple. Just multiply your annual rent payment by the percentage of the total space occupied by the office. That prorated portion can also be applied to utilities, insurance, repairs and maintenance.
• There are limitations to home office deductions based on your income. The taxpayer must be able to itemize deductions, using Schedule A. The home office deductions - along with other miscellaneous deductions - must exceed 2% of your adjusted gross income.
• If home office deductions exceed net self-employment income, those deductions may be carried forward to the next year, again, only if the self-employed has sufficient net income.
• For telecommuters, the business use of an employee's home must be for the convenience of the employer, and the employee must not be renting the office space to the employer.

5 Tips on Understanding Home-Office Deductions

• Take advantage of every legal opportunity to reduce your taxes. Recent changes in the law benefit business owners who use their homes as an administrative and management base but work at other locations.
• Ask your tax professional to analyze your business regularly so you don't miss important deductions.
• Document deductible items. These usually include such costs as computers and other equipment, telephone charges, furnishings, and prorated portions of rent, utilities and home insurance. You may not deduct expenses for lawn care or those related to rooms not used for business.
• If you are a homeowner, discuss with your tax advisor whether or not to take a depreciation deduction for the office space.
• For detailed information, go to the Internal Revenue Service website, and download IRS Publication 587, Business Use of Your Home.

If You've Got It, Deduct It...Maybe.

Running a home-based business can offer many beneficial tax deductions that other businesses sometimes may not claim. Unfortunately, too many small business owners end up paying extra taxes every year because they are unaware of several small business deductions that are available.

Each business may be different, however, so be sure to discuss any possible deductions with your tax advisor or accountant.

• If you join any business or purchase into any franchise, the expenses, such as kits or franchise fees, may be claimed as deductions.
• Be sure to save all receipts for any supplies you purchase for your business use. Computer paper, business cards, pens, catalogs, or any other items you purchase and use for your business.
• Most advertising and giveaways can be claimed on your taxes. Keep all receipts for any newspaper ads or any advertising you do online.
• If you have a phone line or internet connection for business use, save all receipts for each bill paid.
• If you incur fees from customers' bounced checks, those amounts may be deductible. Be sure to keep the returned check, the letter from your bank and your bank statement to show the fees you were charged.
• Keep receipts for all shipping supplies and postage.
• Computers, copiers and fax machines may also be deductible.