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.
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.