Is it fair for the government to change the rules if someone recently signed a 30 year note? The deductions may have been part of their decision to buy. What if they can no longer afford the home because of the government changing the rules mid-stream? Should they lose it? Should those with existing mortgages be grandfathered in?
The purpose of the mortgage interest deduction is to incent people to become homeowners. The percentage of the population under 30 that owns a house it at all time lows, specifically because housing costs, even with the carrot of a mortgage interest deduction, is at all time highs. In the Seattle Metro area, a starter house is going for around $500K, with a mortgage of over $3K/mo. That’s $40K/year in after tax income. Wages have been depressed for years, and a couple making $100K/year cant even qualify for a starter home. (using traditional ratios, 25% of pretax income means they would need to make a total of $160K/year to get a starter house). The issue is that you can rent for about $1500/mo, so why pay a $3K mortgage? Renters don’t pay property taxes, so they are very enthusiastic about voting for anything that increases property taxes. You want to make someone a conservative ... make them pay for the effect of their votes. The elimination of the MI deduction would eliminate Conservatism in a few years.