Volume 15 August 1998 Should You Refinance?
Contents
1. Volume 15 In this issue e Should You Refinance e How Much Are You Really Paying e Printing a Quicken Loan Schedule for Use ina Spreadsheet e Using Multiple Memo Lines e Holiday Hangover e The Year 2000 and Your Farm Business by Gordon Groover Note Step by step instructions are written for Quicken 98 Some adaptations may be needed to match earlier versions Quick Tips Should You Refinance Interest rates are low and lenders are offering to refinance loans Is this a good idea for you It depends As with other financial actions consider all elements of the transaction Refinancing a home loan may be beneficial if you intend to stay in the home for the length of the mortgage Savings can be realized if you do not extend the term of the loan Refinancing to lengthen the term of the note will not generally result in savings In some cases refinancing is an opportunity to choose a larger mortgage to cover costs of remodeling at a lower rate than a personal loan Make sure your cash flow can handle an increased payment Refinancing may also be a way to change to a different type of mortgage If you have an adjustable rate loan and think that interest rates are likely to increase you may want to lock in a low fixed rate Consult your tax advisor before refinancing as it may result in lost tax advantages Interest payments may drop below a level that allows for itemiz2. Let s look at an example using the financial planning features in Quicken Choose Features Planning Financial Planner Loan If you borrow 80 000 to purchase a house on a 30 year note at an 8 0 interest rate monthly payments are 587 01 per month That same loan amount and interest rate on a 20 year note will result in a larger monthly payment 669 15 but the total expense for the purchase will be less Yrsof Interest Monthly Interest Interest Note Rate Payment Paid Savings 30 8 0 587 01 131 326 10 20 8 0 669 15 80 597 37 50 728 74 15 8 0 764 52 57 614 13 73 711 98 We printed the loan schedule to a disk and retrieved the file in a spreadsheet to calculate the total interest payments see the following article A whopping 131 326 in interest is paid in addition to repayment of the 80 000 loan If you can pay an extra 82 14 per month for 20 years you save 50 729 dollars in interest payments shorten the repayment period by ten years and build equity more quickly Consider the number of years you plan to hold the property the tax benefits and how much you can afford to pay Be a wise consumer and know the total costs interest finance charges origination fees etc before selecting a low monthly payment Printing a Quicken Loan Schedule for Use in a Spreadsheet The loan payment schedule in Quicken does not total the interest paid The payment schedule like other Quicken reports can be printed f
3. Macintosh computer there is little to be concerned about however contact Macintosh to verify that your system is Y2K ready If you cannot contact the original manufacturer or cannot get conclusive information consider getting software from one of the sites listed below or contact a local computer dealer to test your system Sites with Y2K information and testing software include e National Software Testing Labs http www nstl com html ymark_2000 html e National Institute of Standards and Technology NIST http www nist gov y2k These sites also provide information about the Y2K problem and computer manufacturers selling hardware with Year 2000 compliance The simplest and least frustrating solution to this problem is to consider purchasing a new computer that is Y2K ready and take advantage of improved performance and speed Specific software used on your home computer can also present a problem when it encounters the year 2000 Most important among these are accounting and record keeping software used to maintain financial records Financial records are important to all businesses for management decisions tax purposes and credit applications and documentation Therefore to insure that you can access your financial data after January 1 2000 take special care to insure that both your computer and record keeping software are Y2K ready Once your computer is Y2K ready you must know the exact version of the record keeping s
4. Click on the Customize button bottom center If appropriate click on the Include file tab at the top of the report window and select Matching Select the information that will best retrieve the information for holiday spending for example category contains gifts Create Smart shopping strategies V Make arrangements with your 44 family to agree upon a gift S exchange and dollar limit V Develop a gift list and watch for those items to go on sale Last minute gifts account for much of the overspending V Appropriate gifts in the right price range will keep you in the good graces of your loved ones and not drag you into the poor house V Avoid the crowds shop early and take advantage of free layaway programs This keeps the clutter out of your house and spreads out the payments as well Or really be different and V Have the family gift exchange later to take advantage of the after Christmas sales The Year 2000 and Your Farm Business by Gordon Groover Extension Economist Virginia Tech The airways cables newspapers magazines etc are all carrying stories about the problem with the world s computers when the calendar changes to the year 2000 This problem is commonly referred to as the Y2K problem or millennium bug Why is this a problem As with many problems it boils down to reducing costs Early in computer technology storage of data was expensive To reduce data storage costs and processing time date
5. ains you to using one memo line for a particular transaction Quick Tips Enter as much information as you might want to someday recall on as many lines as needed Holiday Hangover Are you suffering from a Christmas holiday hangover Yes this is August but many Americans are just breaking free from the credit card debt for last year s Christmas cheer Soon the holiday sales and pre preholiday enticements will be hitting the stores Are you ready for the financial crunch The Consumer Credit Counseling Service in Atlanta offers these suggestions for preparing for the 1998 holiday season Evaluate how much money to spend Use your Quicken records to A A determine how much you spent last year You may want to create a report to see the total expenses for the holidays Include gifts clothing charity decorations postage cards and holiday food If you recorded Christmas expenses separately using a category subcategory class or memo creating a filtered report should be relatively easy If you didn t mark Christmas transactions separately select a time period say mid November through Christmas and review the transactions Estimate the amount of expenses that are above the average Come up with an amount that you are able to save ahead or pay off within two or three months Last year s records may be an incentive to avoid overspending Choose Reports Home Cash Flow Custom Date from 11 15 97 to 12 31 97
6. ed deductions and the refinancing points may not be deductible To estimate the number of months it will take to recoup refinancing fees and closing costs through interest savings Click on Features Planning Financial Planners OKLAHOMA COOPERATIVE EXTENSION SERVICE August 1998 Refinance For our example assume the original loan of 80 000 at 15 began 18 years ago Since then the loan balance has been reduced to 67 392 04 Refinance Planner Existing Mortgage Current Payment 1101 00 Impound Escrow Amount 90 00 Monthly Principal Int 1011 00 Proposed Mortgage Principal Amount 66000 00 Years 12 Interest Rate 7 215 Monthly Principal Int 686 32 Monthly Savings 324 68 Break Even Analysis Mortgage Closing Costs 2800 00 Mortgage Points 0 Total Closing Costs 2800 00 Months to Break Even 8 62 Quicken estimates the time required to recoup the refinancing costs by dividing the total closing costs by the monthly savings In this example the closing costs would be recouped in less than nine months After refinancing the monthly loan payments would be considerably less however the tax deduction could be affected Evaluate savings tax implications and the loan terms before refinancing How Much Are You Really Page 2 Quick Tips Paying When you take out a loan or use a credit card without paying off the monthly balance do you realize how much it costs to purchase with credit
7. ights Act of 1964 Executive Order 11246 as amended Title IX of the Education Amendments of 1972 Americans with Disabilities Act of 1990 and other federal laws and regulations does not discriminate on the basis of race color national origin religion sex age disability or status as a veteran in any of its policies practices or procedures This includes but is not limited to admissions employment financial aid and educational services
8. oftware you are using This can usually be obtained from the Help screen within the software for example Quicken version 6 0c or QuickBooks Pro version 5 0 Contact the software manufacturer and verify that your version is fully Y2K ready If it is not plan to upgrade to a newer version of the software and import all data files to the newer software before January 1 2000 Other software spreadsheets and database programs can be checked in a similar manner This method of testing and upgrading will work for most popular software QuickBooks Microsoft Excel Access Lotus etc However software written or developed specifically for your farm business can present a problem In most cases you will need to find the original programmer to check and correct any problems This could be costly and require time on your part to insure that the software still meets your needs An alternative is to find popular and easy to use software that can be adapted to your current needs and develop your own applications The Y2K problem on your farm can be solved but start now and make sure you are prepared Note from Damona the user s manual or packaging may also indicate whether the software is Year 2000 ready as it does with Quicken 98 Damona Doye Extension Economist 529 Agricultural Hall Stillwater OK 74078 405 744 9813 e mail DDOYE OKWAY OKSTATE EDU Oklahoma State University in compliance with Title VI and VII of the Civil R
9. or use in a spreadsheet such as Lotus 1 2 3 or Excel for Windows While viewing the loan schedule or report window click on the Print button Choose to Print to Tab delimited Disk File Click on OK Type in a file name for example loanschd and retain the txt file extension Choose the disk and directory folder where you wish to store this file for example A Click on OK The report or loan schedule is printed to the disk location selected Open the spreadsheet and click on File Open You will need to click on the Files of Type button and select All Files for the txt file to be listed in the window Find the file you printed from Quicken and double click The report or loan schedule should appear after a series of screens checking the formatting of the file Now you can sum the interest payments using the spreadsheet SUM functions Using Multiple Memo Lines 9 lige Memo lines can be used to store lots of useful information that you might want to someday retrieve For instance if you want to be able to track repairs by vehicle tractor or piece of machinery select a name for the item and consistently use it in the memo line when a repair is recorded Then when you want to see how much you ve spent repairing Old Blue create a filtered report Reports Business Cash Flow Customize Include Category Contains Repairs Memo Contains Old Blue Click on Create Don t forget nothing constr
10. s were abbreviated from 4 digits 1977 to 2 digits 77 The result was a major cost saving for many companies such as banks and governmental agencies such as the Social Security Administration that recorded a date for every transaction Now as we approach December 31 1999 the full importance of this problem is becoming apparent Will 00 in a date field be read as 1900 or 2000 And more importantly how will the computer code responds to 00 Many companies and agencies are working diligently to correct this problem so what should you do with your farm or home computer to prepare for Y2K Problems with your home computer can be sorted into two groups 1 problems with the operating system of your computer for example DOS Window 3 x or Windows 95 and 2 specific software problems for Page 4 Quick Tips example Quicken or QuickBooks Lotus 1 2 3 or Excel If you own a Windows based PC or an older DOS based computer manufactured before 1995 and maybe 1996 you may be at risk for problems The first step is to determine if your current operating system is Y2K ready Start by contacting the original manufacturer to find out if the computer you purchased is Y2K ready If not ask about patches or fixes that may be available In no case should you set the operating system s date to the year 2000 to test out the problem on your computer This procedure could result in your computer failing to start properly If you own a
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