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Handling charges on gift cards are often higher at state banks
Published on Monday, Jan 26, 2009
Associated Press
Here are answers to newspaper reader questions about reverse mortgages, minimum distributions and gift cards.
Q: What is the best way to pay off a reverse mortgage if you don't have the cash?
A: That's an unusual situation. A reverse mortgage is for people 62 and older to convert equity in their homes to cash. It works the same way as a regular mortgage except in reverse: A lender would determine the value of the home and provide you with the money. It comes due only when you sell, move out for 12 consecutive months or die.
If you sell, the buyer's money could pay off the bank. If you move, you most likely should sell the house to pay for it, says Scott Tucker, a mortgage broker in Chicago and author of Reverse Mortgages . . . From Z to A.
If you do decide to prepay the reverse mortgage early, you can do so in any number of ways and with no prepayment penalties. But because you aren't currently making required monthly payments, Eric Bachman, chief executive of Golden Gateway Financial in Oakland, Calif., says there are very few times when it would make sense to consider an early payoff.
If you move or sell your home and the reverse mortgage becomes due, then it's important to know that because it's a non-recourse loan, you never have to pay more than the value of your home, even if the loan amount is larger. This protects you or
your heirs from owing more than the home is worth.
Q: I've heard a new law was signed in December that suspended the required minimum distribution rules for retirees turning 701/2. Can you explain the law and how it affects retirees?
A: The required minimum distribution rule is designed to give the government its share of the taxes on retirement account money, which has been accumulating tax free.
Retirees at 701/2 must begin taking a specified amount of money out of their retirement accounts to pay taxes on their untaxed holdings in an IRA, 401(k) and other similar accounts. Failure to take out the money normally results in a 50 percent penalty on the amount you should have taken out.
President Bush signed the Worker, Retiree and Employer Recovery Act of 2008 on Dec. 23. The bill temporarily waives the penalty imposed by the IRS for failure to take the annual minimum required distribution from retirement accounts in 2009.
Suspending the mandatory withdrawal allows people to keep the money in the account and possibly recover some of their losses when the market recovers.
Advocates for retirees had hoped the government would provide similar relief for 2008, but it did not.
Because of the way IRS rules are written, the required withdrawal for 2008 was based on account balances as of Dec. 31, 2007. Because many people lost significant amounts in the stock market in late 2008, they had to take withdrawals based on significantly higher balances than they had in their accounts, said David Certner, legislative policy director for the AARP.
''We were happy to have relief for 2009, but we were disappointed they didn't give relief for 2008, which was a more critical year,'' he said.
Q: I received a $50 Visa gift card for Christmas, but when I used it at a local restaurant, I learned that 20 percent of the value went to cover fees, and I had only $40 to spend. How is this possible?
A: Gift cards that bear the Visa and Mastercard logos, called ''network branded cards,'' are issued by banks and other third parties, not the parent corporations. Just like credit cards, the fees that are associated with them can vary widely, although experts say $10 in fees on a $50 card was extremely high. Among the most common fees charged are for the initial purchase or activation, for checking balances and monthly ''maintenance'' fees if the card is not used within a specified period after purchase.
About 30 states have passed laws that limit fees or when they may be imposed — for instance in some, maintenance fees can't be imposed for the first 12 months. But cards that are issued by national banks are not subject to limits put in place by states.
The only way to know what fees will be applied to a specific card is to read the fine print on the packaging before purchase. The cost for purchase and any other fees imposed should be spelled out.
Gift card purchasers are more likely to see lower fees on American Express-branded cards, which are issued by American Express itself and are charged only a purchase fee and maintenance fee after one year, or with store-branded cards. Cards sold at banks also tend to have lower fees than those found on multi-card kiosks at grocery or chain drug stores.
Send questions by e-mail to yourmoney@ap.org. Put ''Your Money'' in the subject line. Please include your full name and hometown.
Associated Press
Get the full article here.
Comments
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hudson, oh
Posted 11:53 AM, 01/26/2009
Sure, they know that when they make the deal - so they can get their hands on your house!
