Deadline Newsroom FAQ 81808

When you have questions needing answers that really hit home, contact the Deadline Newsroom. This installment: home equity use; home improvement cost-vs-value; mortgage insurance tax deduction.

by Broderick Perkins
© 2008 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Q: My home equity has grown substantially in the past decade. Now home prices are falling. So is my equity. Should I use it before it evaporates?

A: Financial experts are divided on how you should or shouldn't use your home equity -- the difference between your mortgage balance and the value of your home. But dwindling equity alone isn't a sound reason to tap the till. For one thing, your equity is likely to rise from the ashes. Since the Great Depression, home value declines have never been as great as the home value appreciation that immediately preceded the declines.

Conservative financial planners say never, ever use your home's equity. They say pay off your mortgage so you can retire on a fixed income without a mortgage payment.

If you must use it, the experts agree, use it as a sound reinvestment -- home improvements, college education, business start-ups, a second home and other financial moves that provide an equal or better return on your money than the cost of the loan. Avoid cars, vacations, techno gizmos and other stuff that doesn't give you a return on your money. Emergencies are another consideration and home equity is a better alternative than plastic. Again, the financial conservatives would prefer that you to sock away an emergency savings fund as part of a sound financial plan to protects your home equity.

However, even if you avoid equity use, taking out a home equity line of credit (HELOC) as an emergency backup, could make sense -- at least until you've got that emergency savings pot. HELOCs, like credit cards, come with a revolving line of credit, but nothing is due if you don't use it. Using home equity to consolidate higher interest rate plastic from banks and retailers also can be a good use of your home equity, with a caveat. You must pay off the debt, close the credit card accounts and not backslide.

Q: I understand certain home improvements can help me shore up, even increase the value of my home. How is that possible in a market with falling prices?

A: Homeowners who perform improvements that bring their home up to par with other homes in the neighborhood -- or make them slightly above par -- can protect home value even in a down market because the right improvements increase your home's value. How much the improvement affects home value depends upon a host of factors -- the condition of the rest of the house, the value and condition of nearby similar homes, the local economy's impact on property values, and more.

Hanley Wood's annual Cost Vs. Value report generally says jobs that generate the most value are kitchen and bath remodels, however, the long-time report has yet to include improvements like solar panel arrays which can ultimately pay for themselves, with or without a cost-vs-value return. However, give they pay for themselves, the value derived from the work is invaluable. A home with a solar panel array, compared to an identical home, sans the array, will likely bring in a higher cost.

Q: I'm told I can continue to deduct my mortgage insurance from my income for tax purposes.

A: You can if you qualify. Effective January 1, 2008, the "Mortgage Forgiveness Debt Relief Act of 2007," act extended federal tax relief for homeowners who pay mortgage insurance, from one year, 2007, to four years, until 2010. The extension allows eligible home owners a tax deduction (which reduces your taxable income) on the cost of their government or private mortgage insurance premiums paid in any year from 2007 to 2010. Qualified borrowers are families with an adjusted gross income of $100,000 or less. Families with incomes up to $109,000 are eligible for a partial deduction. See your tax professional for more details.

Got questions? Send them to news@deadlinenews.com. We'll do our best to get you the most relevant answer.
© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's where all the news really hits home.

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