Financial Site Blog Carnival

Actually this is more like a financial web site carnival in that we don’t just promote financial blogs - we promote friendly finance sites of all kinds as long they are not garbage sites.

The power of a linking to our finance friends from a pure post is immeasurable because the SEs don’t see this as just a link page. They see this a deep link in an out. Furthermore, our partners get TWO links - one to their home page and their deep page.

Even more, we tie around each link cluster with unique content so that all of our financial friends get the most potent kind of link possible.

If you are interested in an exchange, email me. (blogmyworld(at)gmail.(com)

So for Insurance Web Sites;

Our first financial web site we are forming a friendship with is Calco Commercial Insurance. Directly below is a link to their site which we like here at OLF.

And now for their deep link in product liablility - Product Liability Insurance - Affordable professional liability insurance for insurance agents, architects, engineers, consultants, technology professionals, physicians and many more.

Ohio Secured and Unsecured Loans (part 2)

Part 2 of Our Mini-Series on Secured and Unsecured Loans

As promised, to our readers in Ohio (and elsewhere) we are working through the Christmas Season and posting the continuation of our mini-series on secured and unsecured loans.

The advantages to mortgages is that interest on the first mortgage on your house is virtually always tax deductible, and the interest on the home equity loan or home equity line of credit is usually tax deductible up to the first $100,000 of the loan amount (you should always check with your tax adviser to find out if you qualify for a deduction). Because the first mortgage lender is taking less of a risk than the second mortgage (home equity) lender, the interest rate on a first mortgage is likely to be lower than that of a second mortgage taken out at the same time. When you look in the financial papers of your newspaper, you will see that current interest rate quotes are lower on first mortgages than on second mortgages.

Other secured or collateralized debts include loans you may take out to purchase expensive consumer items such as cars and sometimes even furniture or television/stereo equipment. If these loans are secured, the lender has the right to repossess whatever it is you used the proceeds of the loan to buy. Unless the lender is offering you a special low interest rate as an incentive to purchase the item, this type of loan generally will have a higher interest rate than a first or second mortgages taken out at the same time. Why? One reason is that your collateral in the lead depreciates in value the minute you buy it and take it out of the store or showroom door. For example, the value of a new car can drop by as much as 10% the moment you drive it away.

Until credit protection laws were enacted, starting in the 1970s, lenders could go to extraordinary lengths to get Money back if you defaulted or work late with payments. They could come to your home and repossess virtually everything in it, including your household pets. Even today, you could end up losing something (such as a TV) you have already paid for if you fail and fall behind in payments on another purchase (such as a stereo). This what happened when your loan has a provision called an add-on clause; if you financed two different items from the same lender, you could end up losing both.

This this ends our series (or should I say mini-series) on the difference between secured and unsecured debt. There comes a time when you must realize your true financial position at the current time. There is no way of knowing what the future will hold as far as the economy goes so it is wise to button down the hatches and be careful with your spending. I suppose this goes without saying.

Have a great boxing day!

If you have not read part two of this mini-series, you should read Part 1 of Secured and Unsecured Loans For Ohio.

Ohio Secured and Unsecured Loans (part 1)

Part 1 of Our Mini-Series on Secured and Unsecured Loans

I know this article is obviously not specific to Ohio only, but this article on secured and unsecured loans (and debt), is food for thought for anyone who wants to come by for a read.  Onward.

There are two basic kinds of debt. First, there is secured or collateralized debt. This means that you have agreed with your lender that some asset you own, such as your house, your, or your furniture, will serve as collateral to secure a loan. If you fail to repay the loan, the lender can take the asset to satisfy the debt. The second kind of debt is unsecured or non-collateralized. In this case your borrower and is based purely on your promise to pay back the loan. Examples include line of credit loans, overdraft protection, credit cards, and demand loans (loans that you are required to pay back whenever the lender asks you to).

In general, secured debt carries a lower interest rate because the lender is not risking as much by loaning you the money. After all, the lender can get your collateral in return if you default on your loan payments. Credit cards, which typically are unsecured, and other unsecured loans generally have a higher interest rate because the lender is less likely to recover the value of the loan and may have to spend more to do so if you do not make your payments. Keep in mind, however, that in some circumstances a lender can still go after your property if you do default on and unsecured loan.

The largest debt (secured or unsecured) you will likely ever have is a mortgage on a house; mortgages are always set up with your house as collateral because very few people can borrower that much money based simply on a signature and promise to repay. When you buy a home in Ohio and take out a mortgage, it is called a first mortgage because your lender has the first dibs on your property if you do not make your monthly payments. Even if you refinance at some point, you will usually still end up replacing a first mortgage with a first mortgage.

There are also home equity loans and home equity open-ended loans, or revolving lines of credit, which, if you have a first mortgage, are considered second mortgages on your home. You may, for example, take out such a loan to remodel your kitchen, consolidate your credit card debts, or buy a new car. These loans are called second mortgages because if you default on all your home loans, the first mortgage holder has priority over the home equity or line of credit lender for repayment. I know of a situation where a house was foreclosed on and then sold; the sale price was less than the amounts due the first mortgage lender and home equity lender. The bank holding the home equity loan got only what was left over after the first mortgage was paid. There are key differences between of home equity loan and an open-end line of credit. With a home equity loan, you borrower on the for a fixed period of time, and if it has a fixed interest rate, you pay the same amount on it every month.

With a home equity open-end line of credit, the amount of the loan and the amount of your monthly payments will depend on how you use the line. For convenience sake, it is great to have a home equity open ended line of credit, but since you can draw against it simply by writing a check against the credit line, it requires self-discipline not to use it for frivolous things. I know of a situation in Akron, Ohio where a home equity line was used for vacations, clothing, and even a new dog. I hope that was a really nice dog.

This article on continues on unsecured and secured loans in Ohio part 2.

College Education Funding Using Income Shifting strategies [2]

Continued from [1]

If you are shifting earned income (by paying your child to work for you), he or she can earn up to $3000, pay no tax on that amount, and still be claimed as a dependent on your return. But, as I explained before, the problem is that on financial aid forms parents’ assets are assessed at a 6% rate, but a child’s assets are assessed at a 35% rate. This often wipes out the advantage of shifting income into a child’s lower tax bracket. I usually do not recommend to parents to shift assets to the children unless the parents have no chance of obtaining financial aid.

What happens if you (or other relatives) have already put money in the Uniform Gifts to Minors Act accounts for your child? Unfortunately, there is not much you can do but try to use these assets up first when college costs start.

As your children grow older, I also recommend that you start to tell them that you have set aside money for them that should be used only for college. This information serves two purposes. First, many children worry about whether or not the family will be able to afford college, and this will relieve some of those worries. Second, you want your child to get used to the idea that she has some money in her name, and that it is to be used solely for education. After all, if you had suddenly discovered when you turned 18 that you had $20,000 and you could use this however you wanted, wouldn’t you be the least attempted take the money and run?

I have some clients in Cleveland Ohio who had already put substantial funds in specific accounts for their two children before they came to see me about their finances. Nancy and David had also ask their parents to contribute money to the child’s accounts at birthdays and holidays in lieu of expensive gifts. (The grandparents, of course, also gave modest presents so their grandchildren would not feel completely deprived. After all, most children could care less about college at 4, 10, or even older.)

Instead of adding new gifts to the existing college education fund, to which the children would have access at age 18, on my advice Nancy and David agreed to set up new accounts in their own names with the titles Nancy (Karen’s education) and David (Billy’s education). The titles were just so they can keep track of what money have been given for each child; the accounts are solely in the parent’s names. These new accounts will always be in their control, and if financial aid rules stay the same, only 6% will be assessed for education instead of 35% if this family were to qualify for financial aid.

A more complicated way to shift assets to your child would be in a minors trust, or a 2503 (c) trust; this is more complicated because you have to have a legal document drawn up, appoint a trustee, and file annual tax returns. In this case, the parent is usually the trustee and controls the money until the child turns age 21. At that point, the child has a window of opportunity of 30 to 60 days during which he can demand that all the assets of the trust be distributed to him.

If the student does not take advantage of this window of opportunity, the trust continues until some aged specified in the trust document when assets are distributed to the child (sees usually age 25 or so).

Ending of College Education Funding Using Income Shifting strategies [2]
This also end our series on financial aid and student loan program. You start this series on [1] of Financial Aid and Student Loans.