In order to trim down the debt of $3.8 trillion dollars, National Commission on Fiscal Responsibility and Reform is thinking of reducing income tax deduction for mortgage interest payments. The Commission is planning to eliminate second homes, mortgages of more than $500,000, and home-equity loans from receiving any kind of tax deductions.
If thus new rule is passed into law, it will affect the mortgage market in a negative way. Lets take a look:
- With an unemployment rate of 21%, the new rule will lead to a further downfall of the housing market.
- Reducing or ending deductions may further lower the home prices leading to an increase in number of underwater properties.
Most experts are concerned about the federal deficit but also believe that reducing or ending mortgage interest deductions will have negative affect on the consumers. Most of them believe that limiting deductions is a good idea but it will result in lower home prices. Thus, it’s better to not implement this new rule unless the market becomes stable.