FairTax in A Minute – What about the home mortgage deduction?

The FairTax has positive effects on residential real estate far beyond this narrow question. Today’s homeowners, if they itemize (and 70 percent do not), pay their interest with post-Social Security/pre-income tax dollars. They then pay their principal with post-SS/post-income tax dollars. Those who do not itemize get no advantages at all. Under the FairTax, all homeowners make their entire house paymentwith pre-tax dollars.

With the FairTax, mortgage interest rates fall by about 25 percent (about 1.75 points) as bank overhead falls; this is a huge savings for consumers. For example, on a $150,000, thirty-year home mortgage at an interest rate of 7.00 percent, the monthly mortgage payment is $999.12 for principal and interest. On that same mortgage at a 5.25 percent interest rate, the monthly payment is $830.01. Over 30 years, the 1.75-percent decrease in interest rates in this instance results in a $60,879 cost savings to the consumer. Finally, first-time buyers save for that down payment much faster, as savings are not taxed.

Under the FairTax, home ownership is a possibility for many who have never had that option under the income tax system. Lower interest rates, the repeal of the income tax, the repeal of all payroll taxes, and the prebate mean that people have more money to spend and have an increased opportunity to become homeowners.

FairTax.org