Weekly Rate & Market Update 2-26-16
Question of the week: When should I throw away financial and tax documents?
Answer: NEVER!
Never throw away any document that has any financial or personal identification information such as your social security number, ALWAYS SHRED THEM.
Okay, perhaps that was a bit over the top, but before I get to how long you should retain records I want to strongly emphasize never tossing any bank statements, tax documents, paystubs, etc into your trash. Always shred these documents to prevent identity or financial theft. One of the primary sources of identity theft is your garbage bin outside your home, many thieves posing as recycle bin divers are more interested in what financial documents they can find in your trash can than the soda cans and wine bottles (which is why in our neighborhood whenever I see anyone rummaging around in the recycle bins I run them off and if they do not leave call the police—over the years of walking the dog every morning I have found may paystubs, W2s, bank statements etc. in the streets and alleys, either dropped by individuals or thieves.).
Buy a home shredder, Office Depot and other office supply stores have many low cost, small shredders that you can use to shred any documents and protect your identity and assets. If you do not have one, buy one, a $50 or $60 investment that may save you thousans.
Now onto the intent of the question, how long should you retain financial and tax records?
Over the years I have been asked this question by many clients and the standard answer from most tax professionals is for federal tax documents retain your records for three years and for state taxes retain your documentation for four years. Conventional wisdom to retain the records for seven years. The IRS can audit you for the prior three years, however in auditing one year they can discover something that causes them to look for the prior year, and then the year prior. From the IRS website, “Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. Generally, if a substantial error is identified, the IRS will not go back more than the last six years.”
There is a very important qualifier to retaining your records: records relating to the purchase of your home and mortgage documents should be kept permanently. Even if you are in your home for fifty years, when the time comes for the property to be sold or transferred as part of your estate there may be, probably will be, the need to establish the cost basis and other factors that weigh into any potential capital gains calculations.
So there you have it, on the short side three years for federal tax documents and four years for state documents, but to be safe save records for seven years for most records like bank statements and income records, but save records on your home purchase until you no longer own the home.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Mixed news on home sales in January. Existing home sales kept the gains from Decembers jump and year over year are up 11%. New home sales however saw a sharp decline in January from December, down over 9%. The news is mixed for mortgage rates, the increase in existing home sales is not good for lower rates, the decline in new home sales is good for lower rates.
More good news from the manufacturing sector as durable goods orders jumped in January after the large drop in December. When there is such a strong reversal in data caution is advised to see if an upward trend is starting, or if the increase is a one month anomaly, we shall see in the coming months. Increases in manufacturing sector number typically push rates up.
All the news early in the week was fluff, the big numbers came out this morning as we got the second estimate for Gross Domestic Product for the 4th Quarter of 2015 and Personal Income and Outlays for January. Both data sets were negative for mortgage rates as they showed positive economic activity.
Consumers made more and spent more in January than in December, and paid more for what they were buying. In December income outpaced spending, in January both personal income and spending increased 0.5%. Year over year consumers are paying 1.3% more on all goods and services, and 1.7% more when food and energy are stripped out of the index (the “core” price index). The Fed uses the core number for its inflations gauge and at 1.7% it is approaching the Fed’s 2.0% target. The January price index may not change the consensus that the Fed will not raise its Fed Funds rate in March, but increases the chances of a move in June. Rates climbed on this news.
As for the economy, the Bureau of Economic Analysis released its second estimate of the Gross Domestic Product for the 4th quarter of 2015 and revised the initial estimate of 0.7% growth to 1.0% growth. The upward revision had little impact on markets as digging into the report shows most of the adjustment was in inventory growth and not more output.
Rates for Friday February 26, 2016: Mortgage rates are barely hanging onto last Friday’s levels with todays’ economic news—and I would not be shocked if rates close higher at the end of the day with midday price revisions from lenders as Mortgage Backed Securities are losing ground this morning. After a few weeks resting on the bottom of the rate chart it appears rates are ready to move up a bit in the coming week or so.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Flat
30 year high-balance conforming 3.625% Flat
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits
The Academy Awards are on Sunday and I have only seen two of the best picture nominees at this point (The Revenant and The Big Short), which are also the only best actor pictures I have seen as well. Looking through the winners of best film through the years not a lot of them jump out to me as outstanding movies—I love going to the movies but it appears my tastes are not always, usually, aligned with those who make the nominations and do the voting.
Enjoy the show, and have a great week,
Dennis
