Among all this talk about deficit reduction and the US Debt, there is a move afoot to either reduce, eliminate or somehow re-jigger the mortgage interest deduction.

There is an interesting article by Kenneth Harney appearing in last Saturday’s Washington Post about this very topic. It seems that people who own houses over $500,000 or second homes are the ones most at risk of losing this deduction or, at the very least, having it modified. However, since this is still in the “talking stage” it seems the the whole kit and kaboodle is ripe for elimination if the “super committee” established as a solution to the US Debt debacle decides to move in that direction.

Does The Mortgage Interest Deduction Really Matter?

Let’s be clear.

The mortgage interest deduction is a tax loophole.  Just like the one for corporate jets.  The only difference is that this particular tax loophole is used by a lot more people.  A lot of those people are just “regular folks”. Middle class. Blue collar. People who have worked hard and long to save money for a down payment and continue to work long and hard to maintain their monthly payments and make modest home improvements.

The deduction was originally created to encourage people to buy homes.  Home ownership is considered a good thing. It creates stable neighborhoods filled with people who care about the place they live.  It helps create better schools, lower crime, and all kinds of other things.  But, does home ownership really do all that?

It seems that with each passing day we hear of school systems that are failing.  It seems crime remains unabated. Many home owners, strapped for cash, either let their home deteriorate or abandon them altogether. Home ownership, per se, doesn’t really create a better society the way we would like it to.

Why create incentives, like the mortgage interest deduction, to encourage home ownership?  Wouldn’t it be better for the country, as a whole, to get rid of the deduction and add that money into the public Treasury to reduce the debt and deficit?

Owning Your Home “Free and Clear”

One of the sweetest sounds I hear are the words, “I have no mortgage on my home.”

To be sure, I usually only hear these words from people who have lived a long time. It used to be that paying off your mortgage as quickly as possible and owning your home “free and clear” was the ideal.  People would double up on payments or maybe refinance from 30-year mortgages to 15-year mortgages.  After all, a mortgage is debt.  No matter how large the mortgage interest deduction is, you still have to shell out some money every month.  Sometimes thousands of dollars.  Wouldn’t it be great if you didn’t have to do that?  Wouldn’t it be great if you could take the monthly mortgage payment and use it for something else?

• your kids’ college education
• a nice vacation
• that 60″ flat screen
• savings for your retirement home

Part of the beauty of have no mortgage is that when it comes time to sell your house, you can sell it.  You don’t have to worry about how much you need to pay off the bank in order to sell your house.  You don’t have to worry about whether the market is up or down.  You can sell it.

There’s lots more to the idea of eliminating the mortgage tax deduction.  Some of the reasoning is BS and some of it makes sense.  Personally, I don’t think removing the mortgage interest deduction would deter home sales or cause home prices to fall through the floor as many people are saying.

Hell, the housing market can’t get that much worse.  Can it?

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