Lessons Learned: Low-cost mortgage could be a big gift

By GENE KELLY/Personal Finance ColumnistFriday, Dec 12, 2008 - 12:17:17 pm CST

December is dwindling down to a precious few days. Yet, there may still be time to power shop for a major family gift — a low-cost home mortgage.Fixed rates available on 30-year and 15-year loans are the lowest in a half century. This appears to be a major inflection point for long-term interest rates.A few days ago, a Lincoln friend called to share good news: Instead of making payments on both a first and second mortgage, she had just locked in a 30-year mortgage that will carry a bargain fixed rate of 5.25 percent.“We knew rates had been dropping,” she explained, amidst all the upheaval in the credit markets and loan foreclosures. Their old “piggyback” loan package consisted of a larger 30-year fixed loan with an interest rate of 5.75 percent, and a 10-year second mortgage that had a 7 percent interest rate.“Since mortgage rates change daily, we asked our mortgage broker about refinancing,” she said. “He found us a low-cost mortgage, with no origination fee or discount points.“One Lincoln-area lender has even advertised a 30-year fixed rate of 5.125 percent. The rate can be dropped to 5 percent by paying a 0.25 percent discount fee, or to 4.875 percent by paying a 0.50 percent discount.Moreover, the Treasury Department is considering ways to encourage banks to offer rates as low as 4.5 percent for newly-issued 30-year fixed mortgages.Of course, to get a low-cost mortgage, you’ll need a good credit history. Banks have tightened lending standards. Having a credit score of 740 or more should put you in the catbird seat.So before you shop for a new mortgage, check your credit scores and request your credit reports at http://www.annualcreditreport.com/.Declining mortgage rates mean the next few months could be a terrific time to trade up to a bigger house or buy a first home.A home is more a shelter than an investment: Over the long run, home prices tend to increase at an inflation-adjusted rate of 3 to 4 percent a year, roughly in line with household income.Everything seems to be on sale. Since I’m a card-carrying contrarian, you’ll find me shopping for short-sleeved shirts when the winter merchandise cubicles are being stocked. I’m the type who would look for a new umbrella only on a sunny day.Nearly all assets have been repriced. Double-digit markdowns have affected investments ranging from the big dividend-paying growth companies to gold and other commodities, and from high-yield junk bonds to aggressive small-cap stocks.I was as puzzled as anybody by the dramatic global collapse of bond and equity investments. But why are so many long-term investers running away from the resulting bargains? Provided you don’t need your savings in the near future, this could be a phenomenal opportunity to accumulate cheap shares. Readers tell me all their savings are going to be moved into bank accounts, Treasury notes or money-market funds.True, you can get a seemingly-decent yield on certificates of deposit. But after subtracting inflation and taxes, this approach is guaranteed to shrink your purchasing power over the coming decades.Looking into 2009: While volatility will continue, I believe the bear market in stocks has bottomed. If the bear cycle and the recession play out as they have historically, the economy should begin to grow again in the second half. U.S. stocks would then end the year in the black.Early filers: Extra real-estate standard deduction now available. If you usually bulk up your itemized deductions by accelerating payment of charitable donations or state and local taxes into the current year, a change in the Internal Revenue Code might mean a change in strategy:For 2008, you could be better off claiming the standard deduction. For the first time, you can take a new, additional standard deduction to reflect real-estate taxes — up to $1,000 for married folks who file jointly and $500 for singles.A 65-year-old married couple who file jointly could get a standard deduction that totals $14,000 for 2008, if they paid at least $1,000 in state and local real-estate taxes. To do the math, both husband and wife get a basic standard deduction of $5,450. There are additional amounts for those 65 or older add $1,050 for the wife and $1,050 for the husband). Finally, add $1,000 for the new real-estate standard deduction.This change in the tax code will be available again for 2009.