<p>Core principle of capitalism: High risk, high reward.</p>
<p>When the market was going up, the people who bought with zero down or 5% down were considered geniuses. You could take your 50K, buy a million dollar house, and sell it when it went up 20% in price in one year- Voila, your 50K turned into 250K! That is the high reward part.</p>
<p>So, when the market goes down 20%, your 50K investment yields a loss of 150K. That is the high risk part. You have to pay up or if you can’t then the bank that took a risk on you and your house has to suck it up.</p>
<p>If the government interferes in this process then it is encouraging MORE risk taking behavior by individuals and banks, because the expectation will always be of a bailout if things go wrong. VERY bad idea.</p>
<p>They could phase it out over five years, starting by ending it with the highest priced homes, and use the funds to subsidize rents or first-time mortgages of folks with low incomes. </p>
<p>Or, speaking like a conservative with a 10-million-dollar home, and a one million dollar tax deduction, “the government could let us keep it. It’s our money!” ;))</p>
<p>You better check your mortgage tax deduction info. Also the mortgage deduction is nearly matched by the deduction for state and local taxes. </p>
<p>"As good as the mortgage deduction is, there is a limit to how much you can borrow and still be able to deduct the interest: Its the smaller of:</p>
<p>The total cost to buy or build your home plus make any improvements, up to $1 million, </p>
<p>or $500,000 in the case of a married individual filing a separate return."</p>
<p>Even with a bad mortgage at 7% your interest deduction is only $70,000 max.</p>
<p>In 1986, I could have been in one of these stories. Newlywed DH and I were living in Mass, paying rent in a frenzied housing market, watching prices go up faster than our income. We had both lived home with our parents for 2 years after college and saved money before our wedding; with our combined savings and our wedding gift money we had exactly 20% down for a condo. We took an adjustable rate mortgage. 18 months later, we looked at the still rising prices in our condo complex and said, “If we hadn’t bought when we did, we wouldn’t have been able to buy now.” Then the bottom fell out. After 6 years, we owed $17,000 more than our condo could sell for. We never had a problem making the mortage payments - although we had 2 kids and I quit my job to stay home with them, we made our payments (even with the interest rate adjustments), and even managed to save enough money for a down payment on a 4 bedroom house - but we couldn’t save enough to pay off the condo AND put the deposit on the house. Luckily for us, my parents were willing to loan us the money to get out of the condo. I’ll never forget going to the bank to get a certified check for $17,000. The teller cheerily asked, “Buying a car?” I growled, “No, selling a condo.” In the next 4 years we paid my parents back AND made our mortgage payments on the 4 bedroom colonial.</p>
<p>If it hadn’t been for my parents, we’d have been stuck in that 2 bedroom condo for a while. The high cost of child care for 2 young kids would have eaten up most of what I would have earned had I gone back to work, especially since my son had a tendency to be sick frequently.</p>
<p>We are still in the same 1900 sf colonial 15 years later, with a mortgage balance that’s about 1/3 of our home value (even with the recent price drop). Many people from our mid-level neighborhood have moved to the newer larger neighborhood 3/4 mile away, doubling their mortgage payments.</p>
<p>So while I have no sympathy for people who think they need a $700,000 home for 3 kids (unless they’re in SoCal or NYC or another super-high-price market), I can empathize with people whose loans are under water. But the government certainly didn’t bail us out!</p>
<p>“Even with a bad mortgage at 7% your interest deduction is only $70,000 max.”</p>
<p>So depending on my tax rate, I save around $30,000 in taxes.</p>
<p>What if I needed that $30,000 or I couldn’t afford the house?</p>
<p>What if I could only afford $40,000?</p>
<p>That would mean, without the mortgage deduction, I could only afford a loan around $570,000. (My property taxes and insurance costs would be less so I could afford to pay a little more). </p>
<p>You can see how important that tax deduction is to the real estate industry.</p>
<p>I could afford a $1 million dollar loan with the deduction, $570,000 without.</p>
<p>Well, as they say it’a all priced into the system. The voters have spoken and good luck getting it changed as all it would do is lower real estate values. Your taxes will not be going down any. The entire sytem would be reworked. The government is not getting an extra windfall anytime soon and you’ll be paying about the same amount either way. Everyone just wants to figure a way so they OTHER guy pays more and they pay less.</p>
<p>So true, barrons. We bought our current house almost 20 years ago and it seemed so expensive. After a year went by (the 1990-1991 recession), the house had gone down in value and chewed through our down payment (30%). We couldn’t have sold it for what we owed (because of the expenses of selling).</p>
<p>But since we didn’t have to sell and we could afford the payments, we stuck it out. And now we have a house “worth” twice as much with a miniscule mortgage.</p>
<p>The difference is being able to afford the payments on the house in the first place. That saved us.</p>
<p>“The voters have spoken and good luck getting it changed as all it would do is lower real estate values.”</p>
<p>If you provided deductions or interest-rate support for first-time homebuyers, or provided subsidies to struggling low-income renters, it would RAISE real estate values. But not among those with currently government-supported expensive real estate. </p>
<p>But dstark is correct - it won’t happen. Americans LIKE government income redistribution when it flows upward.</p>
<p>and was appalled at how much the Breakstone’s home was. Our family income is higher, and our mortgage is SUBSTANTIALLY less, and we live well in a great neighborhood. I just don’t get the relentless need for a larger home. There is a great book out, published 10-15 years ago titled “The Not So Big House” or something along that lines talking about having a small gem of a home, rather than the McMansions springing up around the country. When we bought our present home, the realtor was having a fit trying to find a small, well built “executive” home for us, but he came through after about 30 showings. I am sure we are still in his nightmares. We spend less on furniture, less on utilites, and can afford our other nice things like cars (which we keep 5-10 years. If a Benz or a Lexus is that good, it should last that long at least)</p>
<p>This is probably a great opportunity for all of us to forward the article to our offspring, so that in 5-10 years they don’t make similar mistakes. I will admit to making mistakes on houses and mortgages in our youth, and had to take $3000 to a sale in the mid-80’s to get out of the 13% mortgage. So let’s teach our kids the wisdom of 5%, 10%, or even better, 20% down ( you can really demand what you want from the banker then). We need to teach them that home ownership is great if you know you will be there a decent period of time, but also that real estate is like stocks, only harder to unload in bad times. They need to know that when TLC and Discovery have shows about flipping houses, that the market is already over-saturated. And they also need to know that if everyone says you HAVE to be in some market, (tech stocks, dot-coms, real estate) that it is already on the downswing.</p>
<p>And to the poster (Hanna I believe) who said child support is a choice the Breakstones make on discretionary income, NO. My mother-in-law went through hell supporting her family after the SOB skipped out on the payments. YOU HAVE TO SUPPORT YOUR KIDS.</p>
<p>I hope that my children have stable loving marriages, and that they have no financial difficulties. I hope that they have children when they want, and that they never have to agonize over infertility or an unplanned pregnancy.</p>
<p>I am extremely lucky in marriage myself, and have been married almost 30 years to an incredible man that provides for us, loves us, and when I and the kids are unbearable, tolerates us. He learned well from his father’s follies. </p>
<p>It sounds like you are lucky too, but your judgement on others is harsh. People make mistakes in marriage and love, just like they do in real estate and the stock market. I do not think that people should be forced to tolerate abuse, infidelity, and that we are wrong to judge people whose marriages/unions have failed. No one goes into a marriage thinking it is a mistake, but it happens. Children, whether from a marriage or a one night stand, must be supported. This is something that I am trying to teach my kids, especially my son; that any time you have sex, you can be liable for the next 18 years for another souls support. It is the moral, ethical and LEGAL thing to do.</p>
<p>The government is going to help Tiburon home buyers? :eek:</p>
<p>"Elizabeth and Ben Kilgore are back in the real estate market. All it took was a little-publicized section of the economic stimulus package President Bush signed into law last week that lowered the borrowing cost of buying a more expensive home.</p>
<p>The Kilgores, who live in Tiburon, Calif., just north of San Francisco, are looking for a larger home in town for their growing family. Three years ago, when they bought their first home, they resigned themselves to buying a condominium because it meant taking out a mortgage they knew they could manage. </p>
<p>“This will push us into a price range that’s now financially possible,” said Ms. Kilgore, a real estate agent in Marin County.</p>
<p>And if the limit on loans backed by a government-backed housing finance entity like Fannie Mae is raised from $417,000 to the full $729,750 she has been hearing about, Ms. Kilgore said, “we will be able to get a 30-year fixed mortgage for less than what we’re paying now plus our homeowner’s dues.”</p>
<p>mini, just FYI - the home mortgage deduction is phased out for filers with AGI over a certain number, and we are not talking about some millionaire with a mansion here, the phase outs hit the middle class!</p>
<p>Another FYI - a lot of people buying multi-million dollar houses in the Seattle-Bellevue area do not get mortgages, they pay cash.</p>
<p>If they’re paying cash, they’re just plain dumb. The phase out is at a million dollars, I believe. But any way you look at, the MIDDLE INCOME ($53k is the middle income in the United States) family is subsidizing those much, much wealthier than they are, and with assets at least an order of magnitude greater. That’s what I call government income redistribution.</p>
<p>"And if the limit on loans backed by a government-backed housing finance entity like Fannie Mae is raised from $417,000 to the full $729,750 she has been hearing about, Ms. Kilgore said, “we will be able to get a 30-year fixed mortgage for less than what we’re paying now plus our homeowner’s dues.”</p>
<p>Oh, goodie - I get to pay for that, too. I guess I should be grateful.</p>
<p>Home mortgage interest is reportable as a line item on Schedule A, Itemized Deductions. And the itemized deduction may be limited for certain taxpayers if their income exceeds a certain number. That’s all. I do my own taxes and no, I do not own a mansion or have AGI of $1M :)</p>
<p>On the other hand, mini, folks with home mortgage deductions may not qualify for financial aid for their kids, but lower income families get tuition discounts. Fair trade?</p>