Friday, June 28, 2013

Real Estate and Home Equity Lines of Credit

Is it time to renovate your kitchen or bathroom? Do the floors in the living room need refinishing or the house need paint outside? All of these can be expensive and we don’t always have adequate savings to pay for major remodels. What are our options? A home equity line of credit can be our savior.

A home equity line of credit or HELOC in banking parlance, is a mortgage secured by your home with a deed of trust. It can be a first or second mortgage depending on your home’s current encumbrances.

A second mortgage can be a loan or a line of credit with the line of credit option the most popular. By taking a fixed term loan, one must start repayment with interest immediately on a monthly basis; even if you have not used the funds yet and they are sitting in a savings account. There are times and places where a loan may be a good option for your second mortgage.

The HELOC tends to fill the bill rather nicely for renovations and remodels. The interest rate is based on one of the common indexes like the LIBOR (London Inter Bank Offered Rate) or the Wall Street Journal Prime Rate which is an index based on the prime lending rate of 30 banks. A prime lending rate is the rate at which the bank lends to its best customers. The adjustable rate of the HELOC usually is a “prime plus” interest rate. This may be prime plus 2%, 3%, etc. The rate will change as the market changes. If today’s prime rate were 3.5% and your HELOC was prime plus 3%, your rate would be 6.5%.

A HELOC is a line of credit where its maximum loan amount is based on your home’s value. Most financial institutions will allow you to encumber up to 80% of your home’s value with a HELOC. We refer to this as a loan to value ratio or LTV. Here is an example of loan to value calculation for a HELOC:

Home Value:                $300,000
First Loan Amount:       $180,000
Max Equity 80%LTV   $240,000
Max HELOC               $ 60,000

In the case above, the home would qualify for a $60,000 line of credit.

This house qualifies but does the homeowner? In underwriting, we will match up your
housing costs (principal, interest, taxes, and insurance) with any additional debt you may have to determine the amount you have available to pay on your debts. This ratio can be calculated as 35% to 45% depending on the underwriting guidelines of the institution. In example: If the ratio is 40%, the maximum debt to income ratio amount would be $400 for each thousand dollars in income.

The home equity line is an excellent way to leverage the unused equity in your home and make substantial improvements that can increase the value of your asset. Here at Meriwest Credit Union we can typically provide a preliminary approval within 24 hours. These HELOC deals run about 3 weeks from start to finish. The main hold up is getting the appraiser to the property. There are a limited number of them and a great many properties waiting for to be appraised.

Interested in doing some work on your home? Here is a link to our Home Equity Line of Credit page.

Federally insured by NCUA. We do business in accordance with the Federal Fair Housing Law and Equal Credit Opportunity Act.
Copyright 2013 Meriwest Credit Union. All rights reserved.

Friday, June 14, 2013

Estate Planning and W.C. Fields

One of the hardest things to do for yourself is prepare for your death. As we get older we have to start considering this. Preparing a will or having a lawyer prepare a trust is part of that. But, and I cannot stress this enough, you also need to keep good records.

W.C. Fields (real name:William Claude Dunkenfield) was a comic actor who performed in movies in the 30’s and 40’s. He was extremely popular; a superstar by current standards. Surprisingly, after his death, almost half of W.C. Fields estate could never be located. To ensure his privacy and his access to funds wherever he traveled in Vaudeville, Fields opened hundreds of different bank accounts under assumed names. He did not maintain any records of the deposits or banks, so his executors were probably lucky to locate as many as 48 of the secret accounts. The remaining deposits, estimated to be approx. $600k, were never found. Allowing for inflation, that is $6.7 million in today’s dollars!

As a young vaudeville performer, Fields barely eked out a living. Many years of poverty and near starvation left him with a recurring nightmare: he was alone in a strange city with not a penny to his name and being chased by police. He would awake from these dreams in a cold sweat. This upsetting vision preyed on Fields’ mind, and he began a series of eccentric encounters with banks all over the world.

Terrified of being broke, he would open a bank account under a fictitious name wherever he happened to be. These accounts varied from small sums to as much as $50,000. Fields favored whimsical pseudonyms for his bank books such as Figley E. Whitesides, Sneed Hearn, Ludovic Fishpond, Aristotle Hoop, Dr. Otis Guelpe, and Cholmonley Frampton-Blythe. In time, he began waking up from his nightmares saying to himself. “Forget it, you probably have a bank account in that town.”

Because Fields neglected to keep track of his accounts, only 48 of them were found and closed after he died on Christmas Day, 1946. He had told a friend that he recalled opening at least 700 such accounts.

As an adult, W.C. found fame and fortune, but held on to a lifelong fear that he would go broke. I know that many of us have that same fear. Unfortunately for W.C. Fields, his plan did not work out well for his family. Most of his fortune was likely escheated (taken as abandoned property) by the states where the accounts were held after the legal time period passed where no one claimed the funds. Of course, when he used fictitious names like Aloysius Mergatroid-Hamms, it is not surprising the majority of his estate was never located!

The lesson for us is rather obvious. Proper record keeping and estate planning can be a tremendous comfort to your loved ones. There are many ways to avoid probate and other fees when doing your estate planning. Using a revocable living trust can pass your assets to your family with a minimum of hassle and probate costs. These are also known as Family Trusts. It is important to note that when one establishes one of these types of trusts, they must go to all their financial institutions and change the title of their accounts to the trust with the owners or “trustees” as the signers. The same is true for any properties the family may own. How much can this save you in relation to probate fees and estate taxes? You would need to address this with your attorney. You can set these up online, but you should consult with an attorney to gain a full understanding of the type of trust you need before diving in.

Setting up your savings and checking accounts as Totten Trusts by establishing beneficiaries as part of the opening process is a good idea. A Totten Trust, or payable on death (POD) trust, avoids probate as the beneficiaries are predetermined. When the account holder or holders die, the funds are given to the beneficiaries upon presentation of the official death certificate. If you have money set aside for a special person, child, or grandchild, the Totten Trust is a good vehicle for preserving those funds. Your local credit union can help you establish these types of accounts.

And above all, keep good records. Have them all in one place. Make it easy for your family when you pass away. Set a good example for those following in your footsteps.
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"Auto Financing 101" will be presented at our Main Office on Wednesday, June 19th at 6:30pm. Auto Finance 101 shares the basics of shopping for a car, financing a car, making your deal with the salesman, and how to save money on additional services like extended warranties.

The class takes place at our Main Office at 5615 Chesbro Ave, San Jose CA 95125
Please RSVP with Greg Meyer at