Should the Mortgage Interest Deduction be eliminated?

There is a lot of talk on Capitol Hill about eliminating the Mortgage Interest Deduction (MID). The federal government is facing a huge gap between the money they take in versus what they spend. I know there is a ton of waste going on in the government but that is a discussion for later. The fact is, law makers are looking to get more money from us tax payers and just about every tax deduction is on the table for elimination or overhaul. According to CNN Money, MID is costing  the government $573 BILLION in tax revenue from 2009-2013. Can’t you see them rubbing their hands together, with an evil laugh and drooling when they see that number?

Looking further into what the MID includes, I think there are some things that can be done to the MID without eliminating it completely.  Did you know a second home’s mortgage interest can be deducted? According to the IRS, a second home is considered a second residence and not an investment property. If you have a second home you are probably making enough money to lose that the tax deduction on the second home. Did you know that a yacht qualifies as a second home? Me neither. I get that some people choose to live on a boat and it actually sounds kind of cool. What I don’t get is that you can claim that yacht as your second residence and get a tax break on the mortgage interest.  Come on now! I don’t think eliminating the yacht interest write off from the tax code is going to have much effect on the rich or super rich buying a yacht. They all still want to be on their boat feeling like Captain Jack Sparrow or screaming “I’m the king of the world” from the front of it. Well, at least that’s what I would do.

I don’t see how the elimination of the MID helps the home owners or the already fragile Real Estate market. I am sure there are other things that can be done to modify the MID in the tax code (the National Association of Realtors is 100% against changing any of it) but I think a complete elimination of the MID is a bad idea. There are many homeowners that are still making payments on homes that are worth 50% of what they owe because the tax deduction makes it worth it for them. Would you still pay on your upside down mortgage if can’t use the deduction?  If you are in the market to buy your first home, would you still want to buy if there was no more MID?

 

Interactive Map – Foreclosure Rates, Unemployment Rates & Median Income

Here’s a great tool published by NPR! It’s an interactive map that tracks national August 2009 Foreclosure Rates, Unemployment Rates & Median Household Income statistics. Click here for the link.

Top Five Resources for Upside Down Homeowners

Upside down in your home and facing difficult financial times? Take control of your situation today and exhaust all the resources available to you! Don’t know what those resources are? Well, I’ve gathered the top five resources here to help you get started.

1. First, you need to know what kind of a loan(s) you have. If you have a Fannie Mae or Freddie Mac loan, you may qualify for either a refinance or loan modification through the Making Home Affordable Plan introduced earlier this year by President Obama. Click here for the Loan Look-Up Tool and find out if you have a Fannie Mae or Freddie Mac loan.
2. Find out if you are eligible to refinance your home – yes, this is possible when you are upside down in your home (as long as your first mortgage does not exceed 105% of current market value). See the previous link for more eligibilty requirements).
3. If you can’t refinance, find out if you can qualify for a loan modification. You don’t need to be delinquent in order to qualify for this program! See the previous link for more eligibility requirements.
4. Contact a HUD-approved housing counselor to help you determine your eligibility, walk you through the documents your lender will need, and can sometimes contact your lender with you (by the way, this is a free service offered by HUD). Find a HUD-approved (not-for profit) housing counselor here.
5. Contact your lender and open the lines of communication about your situation. Be sure to have your facts straight before you call so that you can give an accurate accounting of your financial situation. Each lender works a little differently – be prepared to be transferred around before you get to the right department (keep accurate notes of the date and time you called, who you spoke with, their contact information: phone, mail, fax, and email, the name of the department that they work in, and the outcome of your call). Don’t get discouraged if your first few calls don’t yield the response you were looking for. Be polite, but persistent and clarify or repeat back the information that the representative gives you so that you are sure you understand.

Each situation is different and presents different challenges and possible solutions. If you are overwhelmed with this process, don’t be afraid to ask for help. As a Certified Distressed Property Expert (CDPE), I can be an advocate for you and help connect you with a local CDPE to consult with you and walk you through the process. Know that you are not alone, there are many people who are in the same position as you and there is help! Contact me today and get started on the road to recovery!

“You Know You’re Caught When…” – Self Assessment

Being caught in financial distress is a hard realization and sometimes people don’t even recognize the warning signs. Let’s face it – the topic of finances is still the #1 source of stress and relationship discord. This self assessment quiz isn’t a solution, just a tool to help you take control of your financial situation and seek help if needed. Don’t be caught unaware, take control today!

You know you’re caught when… you have any of the following obvious signs:

• Job loss
• Loss/decrease in income
• Rate adjustment on your mortgage
• Already more than 30 days late paying your mortgage
• Negative amortization (your payments don’t include paying towards the principal)

You know you’re caught when you…

• Owe more on your mortgage than your home is worth
• Rely on credit cards to pay your monthly living expenses (Don’t have a budget? Sign up for my newsletter and I’ll send you a financial worksheet free so you can get started on monitoring your monthly expenses today!)
• Have rising household expenses (for example: rates on your credit cards have adjusted up, you have additional child care expenses, accrued medical debt, etc.)
• Experienced serious family illness or injury
• Going through a divorce or split of domestic partnership

If any of the previous statements are true, please take immediate action to take control of your financial future. If you need direction on how to get started, read on to our popular post “I’m Caught, Now What?“ If you have questions on your particular situation, please don’t hesitate to contact my team through my Contact page. We will prompty return your inquiry. This may be one of the hardest realizations, but it is possible to rebuild your life and financial future. The more time you delay, the further you have to climb to get out of your current situation. Start rebuilding today!

I Lost My Job, Now What?

You thought you were secure and prepared to dig in and ride out the economic downturn. Then, the unthinkable happens; you get laid-off or receive a notice that your company is downsizing and your position has been eliminated. Ahh! Take a breath, don’t panic! You’ll need your wits about you to act quickly to save you and your family from a financial disaster. It could get worse? Oh yes! Losing your job or being laid off is just the start. If you don’t make some quick changes,this loss of income will affect you for a long time to come.

What to do?

First, sit down an update your budget. Yes, I talk a lot about budgeting and mention it all the time. It’s so important to have pre-set spending limits. But most importantly, you need to reconcile your budget against your actual spending habits. With the invention of the debit card, a lot of us have gotten away from balancing the old checkbook register. Time to get with the program! A really helpful tool to help you track your spending is www.mint.com. This is a fabulous online resource (they even have an app for the iphone to allow you to track your expenses on the go)!  It’s safe & secure because it does not allow you to make transactions, it just reports information.  Be sure to read their security policy for more information.

Secondly, cut your budget (and still allocate money towards savings) to equal the income you have coming in. Don’t immediately start dipping into your savings cushion to maintain your lifestyle while you look for a job. Whoa! Radical, yes. Over-reacting, no. If you’re reading this post and have not lost your job, I would highly recommend that you seriously look at your budget, expenses, and your savings. If you don’t have at least 6 – 9 months worth of reserves saved up, you need to slash as much as you can from your budget to prepare you for the unthinkable. If you cannot get your expenses down to equal the amount of income you have coming in, pick up the phone and start dialing. Start with your mortgage company and inform them of what has happened and ask for help. There are several options that the lender can offer, if they don’t – ASK them and prepare to be persistant.

Options you can ask about include:

• Loan Extension – where your lender “freezes” your loan for periods of up to 3 months, during which time no payment is due. The payments are then added on to the end of your loan at your normal monthly payments.
• Forbearance – this option allows you to work out an alternative payment schedule with your lender, details of this arrangement will vary by lender and the type of loan you have. If you have a government loan such as FHA or VA you may qualify for additional help.
• Loan Modification – the terms of your loan are modified, usually this involves changing the term of the loan and the interest rate (if you are unemployed, you may not qualify since you need to show an ability to re-pay the loan).
• Loan Refinance – if you have a higher interest rate or adjustable rate mortgage, you may be able to refinance your mortgage down to a lower monthly payment. But this option requires you to be able to pay closing costs, equity in your home, and be able to prove you have the income to re-pay the loan. This might work if you have one borrower still working who can qualify for the mortgage on their own.
• Assistance under the Homeowner Affordability & Stability Plan. In February the Government announced a new plan designed to help homeowners avoid foreclosure and stay in their homes through several different avenues. For more on the overall plan see the press release. To see if you qualify, click here where you can take an online self assessment quiz and find links to speak to a HUD-Approved housing counselor for additional help.

Third, continue calling all your creditors to negotiate lower payments, interest rates on credit cards or other payment arrangements. Even on your services like phone, internet and cable call your provider and ask for a discount or explain your situation and ask what they can do to help you. The economic downturn has affected almost everyone and rather than lose your business, they’d like to retain your future business by helping you today.

It goes without saying, but I’ll say it anyway – file for unemployment benefits as soon as you lose your job. Don’t wait, it may take several weeks for them to process your application and get your paperwork in order. Many states allow you to file for unemployment benefits online. To find links to your state’s unemployment office, click here. Recent changes in the stimulus bill passed by the Government extends the amount of time you can collect unemployment from 26 weeks to now 33 weeks. Some states are even extending that time period based on state initiatives. Another facet of change to the unemployment benefits under the new stimulus bill is an extra $25 per week calculated into your benefits. The final change is making the first $2,400 you receive federally tax-free. After that amount, you pay your normal federal income tax on it.

In closing, the quicker you act the less devastating the results are going to be. Even if you haven’t lost your job, prepare for it anyway because it could very well happen to you or someone you love. Be prepared to monitor your finances weekly and monthly to stay on top of your spending. Get everyone in the family involved and on the same page right at the beginning so that there are no surprises down the road. As always, please let me know if you have questions or need further assistance on this topic by utilizing my Contact Page. If you have some tips or resources to share, please post them here to help your fellow readers! We want to hear from you!