About Real Estate: Automatic payment plans have pros and cons

 
 
Posted10/14/2011 12:01 AM

More borrowers are signing up for plans to have their mortgage payments automatically deducted from their bank accounts, but the programs can have their drawbacks.

 

Q. My bank has sent me a letter stating that it is going to raise the monthly fees on my checking account from $7.50 to $10.50, but that it will eliminate the fees altogether if I agree to have my monthly mortgage payment automatically deducted from the account. I'm leaning toward accepting this offer, because it would save me more than $120 in fees each year and also mean that I would have to write one less check each month. Should I sign up for this plan?

A. It depends on how timely you pay your mortgage each month, how much you typically keep in the checking account, and how steady your cash flow is.

I certainly can't blame you for trying to keep a lid on your checking fees. Average fees on noninterest-bearing checking accounts have jumped a staggering 85 percent in the past year, according to a survey conducted by the authoritative Bankrate.com, as lenders have increasingly sought new ways to boost their bottom lines.

Consider signing up for the automatic payment plan if you have a steady paycheck and are sure you'll always have enough money in the account to pay the mortgage on the due date without having to utilize the 10- or 15-day "grace period" that most lenders provide. But you should forgo the program if, say, your income swings widely from one week to the next because you are self-employed or if you're among the millions of Americans who must constantly juggle their bills to keep from bouncing checks.

I signed up for a similar program years ago, but dropped out several months later. That's because a large portion of my income at the time came from freelance writing, and one or two clients who didn't pay me on time could force the bank's scheduled electronic debit to be declined and trigger big penalty fees.

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The other problem was that, with two growing children at home, paying for those big but unexpected bills entailed in raising kids -- the braces here, the occasional trip to the emergency room after a schoolyard accident there -- often meant that I needed to use my 15-day grace period that the bank previously provided to pay all my bills on time. The automatic payment plan didn't give me that flexibility.

Q. What is a "call provision?"

A. It's a clause in a loan document that allows a lender to order that the entire mortgage balance immediately be paid in a lump sum in certain situations, such as when a home is sold or refinanced. In some parts of the country, a call provision is referred to as an "acceleration" or "due-on-sale" clause.

Q. A few months ago, you wrote that a reader who was taking a job with a new company in a new city could deduct many of his moving expenses. I am not changing employers, but I am being transferred to a different office about 200 miles away. Will my moving expenses also be deductible, even though I will be working for the same company?

A. Yes. Qualifying job-related moving expenses are always deductible, whether you're being transferred by your current employer, going to work for a new one or are even a recent college grad who's moving to a new city to begin a career.

                                                                                                                                                                                                                       
 

The key word here is qualifying. To be eligible, rules set by the Internal Revenue Service state your new job must be at least 50 miles farther from your old home than your old job was from your old home.

To illustrate how this so-called distance test works, let's say that you currently commute 12 miles to your job today. To take the write-offs, your new job would have to be at least 62 miles away from your old home.

Such moving deductions can be hefty. The IRS will allow you to write off the cost of hiring professional movers, or to rent a moving truck if you plan to do it yourself. You also get to deduct the cost of one-way travel to the new home for yourself and any household members who will be moving with you, even if you fly or take a train. If you drive instead, you will get to deduct 19 cents per mile.

There's more: You get to deduct the cost of lodging and meals along the way, any expenses involved in packing or unpacking your stuff, and even the cost of disconnecting utilities at your old home and connecting them at the new one.

Importantly, you don't have to itemize your tax return to take job-related moving expenses. But whether you file the IRS long form or short form, you must attach Form 3903, Moving Expenses, to claim them.

Get a free copy of IRS Publication No. 521, which is also titled Moving Expenses, for more information by calling the agency at (800) 829-3676 or by downloading it from its www.irs.gov website. Also consult a tax specialist for more details.

• For the booklets "Straight Talk About Living Trusts" and "Choosing a Reverse Mortgage That's Right for You," send $4 for each and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.

$PHOTOCREDIT_ON$ 2011, Cowles Syndicate Inc.$PHOTOCREDIT_OFF$

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