The Coming Revolution In Home Financing

The recent commission on reducing the deficit recommended doing away with the mortgage interest deduction.

This would make housing more expensive on a relative basis to other expenses (though overall home prices should diminish because of such a move).

Lenders are now much more conservative in their mortgage loans.

More paperwork and documentation is required to get a mortgage.

In short, don’t expect Uncle Sam to pick up part of your mortgage payment.

Harvey S. Jacobs writes:

Currently, under federal tax law, if you itemize your deductions you are allowed to deduct mortgage interest paid on the first $1 million in mortgage debt covering your principal residence, one second home and the interest payments on home equity loans up to $100,000.

In place of these deductions, the National Commission on Fiscal Responsibility and Reform’s recently proposed a 12 percent nonrefundable tax credit to all taxpayers regardless of whether they itemize. This credit is capped at the interest you pay on $500,000 of mortgage debt, and only for mortgage debt secured by your principal residence, not for mortgage debt you pay on a second home or home-equity lines of credit.

By way of comparison, under current law and 2011 tax rates, a taxpayer in the highest tax bracket, 39.6 percent, paying $25,000 in mortgage interest per year on a $500,000 mortgage would be able to reduce his tax liability by $9,900. Under the commission’s proposal, that same taxpayer would reduce his tax liability by only $3,000. In effect, his mortgage payments would have just increased by a whopping $575 per month.

Part of the commission’s justification for this change is that it proposes a maximum tax bracket of 28 percent. So, theoretically, the taxpayer would have more take-home pay to accommodate his mortgage payment.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (, he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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