With rising home prices, the 63% of people in the United States that own homes are sitting on about $3 Trillion in home equity. This may be unprecedented and it is very good, but also little scary. Homeowners could be tempted to take out home equity loans and or to refinance to pull cash out of homes. This would be ok if for a home renovation that adds value to the home; but not ok if being used to buy a car or anything that will depreciate in value over time.
This could be a way to pay for a college education for children; but again it will come at the expense of retirement income later on so be careful. It would not be a good idea to borrow more than 70% of the value of the home because if a correction comes, which is likely sometime in the future, it would be possible to owe more on the home than the amount of the mortgage. This is called being upside down.
And, then there is the federal government looking at what is called unrealized capital gains. There are some in Congress that want to tax unrealized capital gains even though the home has not be sold. The reasoning is that your home value has gone up and so Big Brother wants a share of the gain. Let us hope this never happens, but with all the new entitlement programs under discussion, this $3 Trillion pot of gold sitting in home equities could be a target. Keep your ears open and your dialing finger ready to call your members of Congress if there is any mention of taxing unrealized capital gains. It would be a disaster for many homeowners.
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