How the Debt Debate Can Affect Your Mortgage Payments

While the nation has been shaking its head as Democrats and Republicans fight like kids in a playground after school over America's economic future, mortgage rates have climbed, based on the outlook of the nation's credit standing.

Simultaneously, there is another issue raised for debate that has the potential to rock the already fragile housing market, whether you presently own a home or plan to in the near future: It's the very popular Mortgage Interest Deduction, and it is a vital part of your ability to keep or acquire your home.

As many homeowners know, the Mortgage Interest Deduction allows taxpayers to reduce their taxable income by the amount of interest paid on the mortgage of their primary residence.

This is most helpful to new homeowners as the first few years of your mortgage are primarily interest payments. That's how a $2,000 mortgage payment can wind up being a $1,240 payment (if your tax bracket is 38%).

National Association of Realtors® NAR Chief Economist Lawrence Yun recently stated: “As the leading advocate for housing and home ownership, NAR firmly believes that the mortgage interest deduction is vital to the stability of the American housing market and economy... The MID facilitates home ownership by reducing the carrying costs of owning a home, and it makes a real difference to hard-working middle-class families.”

Opponents of the bill argue that it's costing the economy over $470.4 billion a year in lost tax revenue. William Gale of the Tax Policy center stated, "The deduction not only drains significant revenues from the Treasury each year, it also provides much larger benefits to high-income households than to low- or moderate-income households."

However, as a homeowner and associate real estate broker in the streets of Brooklyn dealing with sales everyday, I can bare witness that this deduction has a real benefit for real people like me and you.

Our recent recession was brought on by the fragility of the housing market, and any measure taken to exacerbate that weakness could be a dangerous move.

Once considered a sacred cow, this deduction has become vulnerable in the pending panic of the economy. Even if it remains in this present package that will be presented to the nation, its opponents will surely use this momentum to attempt to kill the deduction in the future.