Mortgages Catch Up

After months of watching Treasury rates fall and wondering when the impact would finally reach borrowers, mortgage rates moved swiftly beginning in late December and are now at levels where homeowners should investigate refinancing. According to bankrate.com, 30-year fixed rates are averaging 5.1%, while 15-year fixed are at 4.76%.

Good credit scores are a must, and be sure to negotiate low, fixed closing costs.

Roth Conversions

I've been getting few questions lately on the prudence of converting IRAs to Roth IRAs, driven in part by the lower balances (and corresponding tax liabilities) of clients' IRA accounts.

Though some people are currently limited because their Modified Adjusted Gross Income exceeds $100,000, this limitation is going away in 2010. Also, conversions made in 2010 have the added advantage of having the tax liability spread over 2010, 2011, & 2012.

If you are able to convert in 2008, there are a number of points to consider (see the link above) and one crucial date - December 31. You can undo the conversion without penalty before you file your taxes, but if you wait until 2009, you've lost the ability to convert in 2008.

Additional Links: http://www.fairmark.com/rothira/index.htm

Save $1,000 This Month

Keeping with the new 'cheap is cool' paradigm we now find ourselves in, I direct you to Ramit Sethi's blog "I Will Teach You to be Rich" and his "Save $1,000 in 30 Days" challenge.

The blog is evolving with a new tip posted each day and he has promised to focus on reasonable, do-able changes.

So far its been a mixed bag with some topics like "Optimize Your Cellphone Bill" (I don't have a cellphone so how about zero - is zero optimal enough for you? Blame it on (or thank) my depression-era parents - we still had a party line in the 70s.)

On the other hand, he's finally gotten me to pack my own lunches - something I needed to do for health as well as economy.

There's no need to sign up if you don't want too - you can get to the tips for free. Check it out and maybe learn something.

Inflation or Deflation? - SmartMoney Weighs In

This SmartMoney article throws out the pros & cons that I've been wrestling with on the deflationary indicators. I still lean (as does this article) towards inflation. I have the following comments on the counter-arguments:

  • Interest rate cuts signal the Fed no longer fears inflation: I feel the cuts are simply a 'Do Something!" reaction and the Fed is saying "To hell with inflation - we'll deal with THAT crisis later."
  • Commodity prices have cratered: This, I think, is more demand (or lack thereof) driven. Commodities are priced at the margin -- going from a slight excess of demand over supply to a slight excess of supply over demand produces wild price swings.
  • TIPs rates show deflation: I think the record TIPs yields are a result of selling pressure. As portfolios are unwinding their leverage, often a forced sale, they are selling what they can and quality issues are being driven down, thus pumping up the yields.