Deductions for mortgage payments may be a waste

House

The interest deduction from mortgage payments may not give much instant cash to the homeowners who can use it. Image from Wikimedia Commons.

A lot of homeowners can try to get a bit of extra cash by taking tax deductions for interest paid on mortgage loans. However, it’s been suggested that tax breaks on mortgage interest are a waste. Fewer people are applying for personal loans for homes these days.

Homeowner tax credit under fire

A recent post on CNN Fortune by Nin-Hai Tseng suggested that the tax break offered to homeowners for interest on mortgage payments doesn’t actually benefit the people that could really use the instant cash. The argument is that a homeowner has to itemize deductions to receive the tax break and because usually only wealthy people actually do that, the tax break benefits fewer people than thought. Also, because the interest deduction has no effect on actual home prices, it doesn’t do much for the housing market. Since the costs of homeownership are so high, and a person is never likely to gain full equity, maybe putting more payday cash into savings instead of real estate isn’t a bad idea.

Fewer buying houses

The number of people getting an installment loan or personal loan for a home is dwindling, according to USA Today. For the month of October, home sales saw a drop of more than 2 percent. Granted, a drop of less than 3 percent is hardly time to start panicking or declare a depression, but October of 2010 had 38.5 percent fewer sales than October of 2005. Fewer people are willing to borrow money because of conditions or inability to because of lending standards.  The housing market still has a long way to go before it has recovered from the downturn of the last few years.

American dream getting further from reality

Many of the components of the American Dream, like owning a home, getting a good education and so forth, are all getting further out of reach for many Americans. However, there is reason for hope. Most signs are pointing to growth, just at a slower pace than hoped.

Sources

CNN

USA Today

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