MyFirstPlaceNW

The Mortgage Credit Certificate (referred to as the MCC tax credit) is a dollar for dollar tax credit available to first time homebuyers (those who have not owned property for the past three years). The tax credit relates to the mortgage interest paid on a homeowner’s property for the life of the loan as long as the single family residence, townhome, condo or manufactured home is occupied by the owner.

The first 20% of interest the homeowner pays as part of their mortgage payment will come directly back to them as a dollar for dollar tax credit. That means for every $100 spent on mortgage interest, $20 of that will come straight back to the homeowner who is taking advantage of the MCC. Also, the remaining 80% of mortgage interest paid by the owner living in their single family residence, townhome, condo, or manufactured home will still be tax deductible.

Below is a fictional example of John and Jane Doe’s purchase of a $275,000 home. While the benefits of the MCC would last all 30 years of the Doe’s loan, I have chosen to only show the first three years to illustrate the gist of the savings in the present and future. This example has John and Jane securing an FHA loan with a 3.5% down-payment and at a 5% interest rate on their 30 year fixed FHA loan. For this example, a 20% effective tax bracket was used to clearly illustrate the potential benefit of the MCC as it pertains to the remaining tax deductibility of homeownership.

Year #1….Total Interest paid in at $13,311.59

Annual property tax paid at $2,750.04

Mortgage insurance paid in at $2,255.64____Brings the total to $18,317.27

That gives John and Jane an additional $3,663.45 refund ($305.29 per month)

If the MCC was utilized, that refund would be $5,793.31 ($482.78 per month)

Year #2….Total Interest paid in at $13,109.29

Annual property tax paid at $2,750.04

Mortgage insurance paid in at $2,255.64____Brings the total to $18,114.97

That gives John and Jane an additional $3,622.99 refund ($301.92 per month)

If the MCC was utilized, that refund would be $5,720.48 ($476.71 per month)

Year #3….Total Interest paid in at $12,896.61

Annual property tax paid at $2,750.04

Mortgage insurance paid in at $2,255.64____Brings the total to $17,902.29

That gives John and Jane an additional $3,580.46 refund ($298.37 per month)

If the MCC was utilized, that refund would be $5,643.91 ($470.33 per month)

The MCC can be a great tool to save tens of thousands of dollars over the life of the loan for the right scenario. If you’re looking for more information on the MCC or buying your first home in general, please go to our Calendar page and sign up for one of our FREE first time homebuyer seminars. We are certified MCC instructors and a certificate from our class will allow you to take advantage of the MCC if it fits your scenario.

*Circumstances differ for every homeowner. There are several factors to consider as they pertain to each individual situation when applying for financing or tax credits. The information provided was intended for informational purposes only and each prospective buyer should consult with a mortgage as well as tax professional on a case by case basis for greater details on how the MCC would fit for them.