The Mortgage Interest Deduction Hustle
Y’all know the mortgage interest deduction hustle, right?
LOAN HACK: Mr. Jones, your $1,500 payment only feels like $1,000 because you get to write the mortgage interest paid off of your income.”
JONES: Your sure about that?
LOAN HACK: Ab-sa-tively. ‘Course, my boss tells me that I’m required to refer you to your tax advisor for that question.
JONES: Good idea. Can we do a conference call tomorrow?
This is where loan hacks get into trouble. You see, the mortgage interest deduction is ONLY deductible from taxable income IF the customer itemizes his expenses. The standard deduction, for 2009, is $5,700 for single filers and $11,400 for married people filing jointly.
Q: When does that get loan hacks in trouble?
A: Somewhere around a $200,000 loan amount for married people.
Even at $300,000, the savings aren’t what might appear. While the customer might pay about $17,000 in mortgage interest, his MARGINAL benefit would only afford him a $6,000 income deduction (he would still take the standard deduction if he continued to lease). When loan hacks suggest that the $2400 payment only FEELS like $1500, they’re practicing prestidigitation. In fact, the mortgage payment really FEELS like $2200, after accounting for the MARGINAL tax savings.
Is this important? Well, at least half of the homes sold, in the past twelve months, were under that amount. How many of those home buyers do you suppose were told by their real estate agents and originators, ” Oh! You get a write-off (but check with your tax advisor)”
Q: Is it important that you have this conversation with customers?
A: Only if you want to position yourself as a mortgage fiduciary. Positioning the new breed of originator as a fiduciary is one of our goals at Mortgage Revolution.
N.B.- This is exclusive from the federal bribe to buy a home. We’ll examine the affect of the legal bribe to buyers when we ask “Are you explaining to your customers the cost of NOT buying a home?”, next week.