What is the Mortgage Credit Certificate? The Mortgage Credit Certificate (MCC) is a dollar for dollar tax credit for first time home buyers. The credit relates to the mortgage interest paid on a homeowner’s property over the life of their loan, as long as it remains owner occupied.
How does this differ from the standard interest deduction? The first 20% of interest you pay on your mortgage will come back to you in a dollar for dollar tax credit. The remaining 80% of interest paid will still be used to write down your income on your taxes as it normally does with owner occupied properties.
Can you give me an example? Let’s pretend the Johnsons are first time home buyers and purchase their first home for $275,000. We’ll also assume they will utilized FHA financing with a down payment of 3.5%, a fixed interest rate of 3.75%, and are in a 20% tax bracket.
Year #1…Total interest paid = $10,040.95
Annual property taxes = $2,750
Mortgage insurance paid = $3,375.24
Total paid in = $16,166.19
Annual tax savings = $3,233.24 or $269.44/mo
Annual refund with MCC = $5,819.83 or $484.99/mo
Does the MCC last for the life of my loan? The MCC does last for the life of your loan as long as you’re occupying the property. However, keep in mind that as time progresses, though your monthly mortgage payment may stay the same, more of your payment will go towards principle. Therefore, your tax savings will slowly decrease because you are paying less and less interest every year.
The MCC sounds like a no brainer for first time home buyers! The MCC is a fantastic program, but there are parameters you have to meet, as well as repercussions if you stop occupying the property. Don’t make a decision without getting educated first! If you’d like to learn more about the MCC go to our Calendar/Reservations page and sign up for our FREE First Time Home Buyer/Down Payment Assistance workshop.