| House Refinance Center |
| Home Mortgage Interest Deduction Closes More Real Estate Deals |
| Mortgage Interest Deduction: Real Estate Groups Will Fight To Keep The Status Quo When the discussion turns to the Mortgage Interest Deduction, the wealthy homeowners take most of the heat. But the banks, mortgage brokers and the real estate professionals are reaping the most benefits. Sure the homeowner gets the benefit of a tax deduction, but the banks end up with profits due to repeated refinancing. The mortgage brokers get their fees. And the real estate agents get commissions. Banks make money when you owe them money. No better way to keep the cash flowing than to sell you on the idea of refinancing your mortgage. Homeowners have to wake up and realize that paying off their house is a benefit. Refinancing benefits the banks because the highest deductions are in the early years. For example on a $290,000 mortgage at 6%, and a federal tax rate of 33%, the tax deduction in the first year is $17,303.12, and in the second year it is $17,083.48. If we go all the way down to the tenth year the tax deduction is $14,761.47. The fees associated with refinancing in the early years, for example, years one through three, are huge profits for the bank. Without the mortgage interest deduction argument, homeowners would not refinance as readily. Realtors like the mortgage interest deduction just the way it is. Real estate agents will try and sell the most expensive house. The higher the price the more commission they make. When a prospective buyer balks and says the house will cost an extra $400 a month and that it will be too much for his budget, the realtor has the answer. He says, "but you have the mortgage interest deduction. This will give you $5,000 a year. So this is enough to cover the extra $400 a month". The homeowner buys this argument without even doing the math. Mortgage brokers are similar to the realtors. The larger the loan the more money they make. They use the same line of reasoning as the realtors. The mortgage interest deduction will help cover the fees. I believe that the Mortgage Brokers Association and the National Association of Realtors represent a powerful lobbying group in Washington. It will be difficult for any Administration to ignore them. Some sort of compromise will be reached. One feasible compromise would be a cap on the amount a taxpayer can claim for the mortgage interest deduction. A maximum of $10,000 would be reasonable. In high value real estate markets like California and New York, homeowners living in these two states might not be happy. Another possible compromise would be a cap on the value of the house. If you can afford a million dollar house why do you need a tax deduction? I know, you are greedy. The Obama Administration seems to like this option. Their latest proposal was for a cap of $500,000 instead of the current cap of $1 million. We shall know the outcome in a few weeks. prev: next: |
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