The latest on tax breaks, refinancing, bathroom remodeling, home equity rates and more

August 30

According to Interest.com's latest national survey of home equity rates, the average cost for a $30,000:

• Home equity loan edged down to 8.05% from 8.07% last week. It has been hopping between 8.01% and 8.07% since June 20. It is up more than one-tenth of a percentage point from 7.91% of one year ago, but much higher than the 7.19% we paid in August 2005.
• Home equity line of credit remained at 8.25% for the fourth straight week. The HELOC rate now matches the prime rate, on which it is based. Today's rate is just a tad higher than the 8.21% we were paying last August. Two years ago you could get a HELOC for 6.68%.

You can check here for home equity loan rates in your area.

August 28

Take full advantage of all the ways your home can reduce this year’s federal income tax bill. The biggest savings will come from deducting four common expenses:

• The interest on up to $1 million in mortgage debt on as many as two homes.
• Up to $100,000 in home equity debt, even if you are also deducting the interest on two homes.
• The premiums for private mortgage insurance -- if the home was purchased this year.
• Local property taxes.

Deductions are subtracted from your earnings, reducing the amount of income that can be taxed. Most homeowners will reduce their taxes by 25 to 33 cents for every dollar worth of deductions, depending on their tax bracket.

The Energy Policy Act of 2005 provides a tax credit of up to $500 for many home improvements including the installation of extra insulation, replacement windows and high-efficiency furnaces and air conditioners.

Tax credits are subtracted from how much you actually owe. Every dollar in credits saves a dollar in taxes.

August 13

An overwhelming number of homeowners with adjustable-rate mortgages are switching to fixed-rate loans when they refinance.

Freddie Mac, one of the big government-chartered companies that buys mortgages from lenders, says 85% of borrowers who had one-year ARMs and 86% of borrowers with hybrid ARMs switched to fixed-rate mortgages in the second quarter.

Hybrid ARMs are all of those mortgages that have a fixed, initial rate for three to 10 years before their rates begin to reset.

August 8

Vessel sinks with above-the-counter basins can transform a bath from functional to fabulous.

"If you want to make a wow factor, you need something people will come out and talk about what they've just seen," says Ed Del Grande, master plumber and host of DIY Network's television show Ed the Plumber. "A vessel sink really is a conversation starter."

The only drawback is that they cost a little more. While an ordinary drop-in sink or solid surface vanity top might cost $100 or so, the starting point for vessels sinks is at least twice that amount.

Click here for more ideas on how to make your bathroom more luxurious for a few hundred to a few thousand dollars.

August 7

Watch out for higher deductibles on your home owners insurance.

Many big insurers are quietly switching from a flat amount of $500 or $1,000 to a percentage of the home’s insured value – typically 2% to 5% for wind and hail damage, to 15% for earthquake coverage.

For most homeowners, that means bigger out-of-pocket expenses if their property is damaged by a serious thunderstorm, hurricane or quake -- $4,000 to $30,000 for the typical $200,000 home.

While percentage deductibles are most often found in the West and Southeast, where quakes and hurricanes are most prevalent, they’re becoming more common in other parts of country.

Insurers can slip such changes into the fine print of renewal notices as an alternative to dramatically raising premiums -- something homeowners are more likely to notice.

If you’re not sure what your policy says, call your agent. Don’t wait until you’re facing a big repair bill to find out how much you’ll be expected to pay.

July 30

How much does a foreclosure depress the value of surrounding homes?

Only one study we know of directly addresses that question. It was written in 2005 by Geoff Smith, project director at the Woodstock Institute in Chicago, a non-profit organization that promotes the development of low income and minority neighborhoods, and Dan Immergluck, an associate professor at Georgia Tech in Atlanta.

Using 1997 and 1998 property records from Chicago, they found that every foreclosure within one-eighth of a mile of a single-family home lowered that home’s valued by about 1 percent. So if you own a $300,000 home, a foreclosure down the block could cost you $3,000 in equity.

July 28

If foreclosures are driving down property values in your neighborhood, Moody's Economy.com says the worst is yet to come.

It projects delinquencies will peak at 3.6% of all mortgage debt outstanding in the summer of 2008, up from 2.9% in the first three months of this year.

Homeowners with subprime adjustable-rate mortgages will be hardest hit, with one 10% being in foreclosure by mid-2008, up from the current 4%.

Subprime ARMs taken out during the final three months of 2006 are expected to be the worst, with a foreclosure rate peaking at just under 20% in the fall of 2011. This is more than three times the peak foreclosure rate that is forecast for loans originated in 2004.

July 21

More than 481,000 borrowers are eligible for a share of the $325 million Ameriquest Mortgage Co. has agreed to pay to settle accusations of predatory lending.

Attorneys general and banking regulators from every state except Virginia investigated the lender and concluded it used deceptive, high-pressure sales pitches to saddle consumers with home loans they had no hope of repaying just to collect excessive orgination fees.

The settlement covers loans made by Ameriquest and it's affiliates -- ACC Capital Holdings Corp., Town and Country Credit Corp., and AMC Mortgage Services, Inc., which was formerly known as Bedford Home Loans.

The average payment, about $600, won't be enough to save anyone teetering on the brink of foreclosure or bankruptcy.

But postcards have been mailed to customers who took out mortgages or home equity loans between Jan. 1, 1999 and April 1, 2003, and may be eligible for restitution.

For more information go to www.ameriquestmultistatesettlement.com or call the settlement administrator at 800-420-5875. Hearing-impaired customers may call 866-494-8274.

July 13

Fremont Investment & Loan will postpone foreclosure proceedings against 2,200 Massachusetts homeowners after state officials accused it of giving subprime mortgages to borrowers who couldn't afford the payments.

The 90-day delay came after Massachusetts Attorney General Martha Coakley theatened to sue the California-based lender for violating the state's consumer protection laws.

Coakley says she'll use the time to review internal company documents to see if Fremont falsified information on loan applications, such as inflationg borrowers' income, or hid onerous terms from their customers. If so, she may challenge the foreclosures.

July 11

Surveys suggest a shocking number of homeowners -- as many as one out in three -- don't know if they have a fixed-rate or adjustable-rate home loan.

If you aren't sure, dig out your mortgage papers and check. A big, new bill landing in your mailbox is no way to find out.

This is especially important if you live in a state like California or Nevada, where ARMs account for 40% of all outstanding mortgages, or have a subprime loan, which almost always has adjustable interest rates.

Anyone with an ARM must know when the payments begin rising and by how much. Increases of 10% or 20% are common when these mortgages reset.

Click here for more ideas on how to cope with rising ARM payments.

July 10

If your adjustable-rate mortgage payments are going up, here's how to find some extra money without tapping the equity in your home:

• Eat breakfast at home.
• Buy a 12-pack of sodas and a box of microwave popcorn at the grocery store and take them to work instead of hitting the vending machine.
• Lower your cable bill by canceling premium movie channels you seldom watch.
• Stop paying for online services you don't use, such as commercial-free radio or unlimited electronic greeting cards.
• Sell your car or truck and get something more affordable. If you're driving a $30,000 pickup or sport-utility vehicle that gets less than 20 miles per gallon you can not only reduce your monthly payments, but spend less on gas and insurance, too.

Click here for more ideas on how to cope with rising ARM payments.

July 7

Everyone needs an emergency fund -- three to six months worth of after-tax income -- to cope with layoffs and big, unexpected expenses.

But a home equity line of credit that allows you to borrow against the value of your home by writing a check or swiping a debit card can be a good alternative.

A HELOC allows you to decide how much of the loan you want to payoff each month. While you must always pay the interest charge -- which is usually tax deductible -- you can choose to pay as much or as little of the principal as you wish.

While most lines of credit cost about $200 to establish and $50 a year to maintain, some lenders in Interest.com's extensive database of the best HELOC rates charge no application or annual fees.

July 6

Watch out for builders, painters or landscapers that know exactly where to get a home equity loan to pay for their work. You may not be dealing with a legitimate workman, but with a front man working for predatory lenders.

After homeowners take out the loan and pay all the fees, the lender claims to write a check directly to the fake contractor. The contractor does a shoddy job -- or no job at all -- and disappears.

The lender says that's the borrowers' problem. They're still on the hook to repay the loan or face foreclosure.

For many reasons, home equity lending attracts more than its share of charlatans. Click here to learn more about protecting yourself from predatory lenders.

June 21

Here's a simple formula to decide whether it's smarter to pay extra on your mortgage or save it for retirement.

Multiply your mortgage rate by 1 minus their tax rate. Compare that return to what you think you can earn with a conservative investment in your employer's 401(k) choice. Choose the higher one.

Example: If your mortgage interest rate is 6% and your tax rate is 25%, the math is 6 times the difference of 1 minus 0.25 (or 6 times 0.75). The result is 4.5%. That's your real mortgage rate when you consider the mortgage tax deduction. If government bonds are paying 5%, you should choose retirement investing over mortgage prepayment.

Economists from the Federal Reserve Bank of Chicago, University of Texas at Austin and University of Michigan recently reported that 38% of families putting extra money towards their mortgages are making the wrong choice.

Have a question about your finances? Ask us at editors@interest.com