Tag Archives: home values

Is The Debt Forgiveness Act Still Available In 2014 ?

This is one of those situations where things are just not fair.  The debt forgiveness act was in acted in 2007 when the market just came tumbling down and home values were not worth what they once were.   It was intended to ease the burden of someone that just lost their home or just did a short sale so that they can avoid paying the phantom tax.   As of now the debt forgiveness act expired Dec. 31, 2013.

So what does that mean? The economy has gotten better but I still see many struggling to hold on to their homes.  So lets say someone has to do a short sale or may just out right lose their home.  If you owe lets say $300k on your home but have to sell it for $200k because its just not worth what you paid for it since you bought it during the peak.  Well that difference, is counted as income.  So now you have just made a $100k that you never got.  Which for some people can be one very huge tax bill.

The really sad thing about all this is that banks can still write off the losses but the every day person cannot.  I know that supreme court as deemed corporations, “a person” so this goes without saying that some people just have privileges that others do not.  Unless congress gets it together and reinstates the forgiveness act, the regular person will not be able to write off those losses.   It is up for discussion currently with congress and there is a bill to reinstate it, but as of now it is expired.

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15 Year Fixed Loans – The Way to Avoid Negative Equity

Twenty percent of all U.S. mortgages are underwater, and seventy percent of Nevada mortgages have no equity. Underwater homeowners are unable to sell their homes unless they have significant savings or can qualify for a short sale. This percentage of homes with negative equity is hard to conceive. The real estate market in Nevada during the boom was too drastic, and their recovery is most painful. The national real estate market will see declines over the next year, how bad the declines will be will vary for Colorado Homes and Tooele Utah Real Estate. . It’s not likely that real estate values are going to be rising anytime in the next few years.

Is there way we can prevent any more decline in real estate values? How do we keep from having negative equity in a declining market?

Nope. There is nothing we can do about the external factors driving home prices , the federal government has tried to , but we do control how much we owe on our home loans . The way 30 year amortized mortgages are set up, there is very little principle paid and equity gained during the first few years.

One of the ways that you can easily reduce principle is with a 15 year fixed mortgage. Right now, the average interest rate for 15 year mortgage loans are the lowest they have ever been. By refinancing to a 15 year fixed mortgage, your payment will be a little bit higher, but the amount of principle paid off will be exponentially more. During the first year of a 15 year home loan, the principle value declines by almost 5%. So, your equity level would keep pace with a market where real estate values declined by 5%.

And, this was just the reduction in the first year. The amazing thing about amortization is that the amount, and rate, of principle payed off increases every year.During the fifth year of the loan, the mortgage amount will decline 7.5%, during the tenth year equity is reduced 15%, and during year 14 it is reduced 50.6% and year 15, it will be reduced 100%. At that point you can say that you actually own the property. After fifteen years with a 30 year mortgage, the loan is only 30% paid off after fifteen years. It takes homeowners with 30 year mortgages twenty years just to get 50% equity.

The attitude towards real estate investments has definitely changed in the last decade. The commond advice used to reccommend borrowing as little as possible to “leverage†your real estate investment, because home values “always” increase. Now, the smart thing to do is to pay off the mortgage and eliminate the house payment altogether. By having more equity than market value, sellers aren’t chained to their current house and are free to move at any time.

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