This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Don't Go Crazy Just Because Mortgage Interest Deduction Was Saved

NEW YORK ( BankingMyWay) -- Now that we've dodged the bullet and the fiscal cliff debate is behind us, it's time to think seriously about that new home you've wanted.

The deal approved this week leaves intact the homeowner's mortgage interest deduction, which makes a home purchase more affordable. There had been some talk of modifying or eliminating that tax break for homeowners, and though the idea never got a lot of traction it was enough to make a prospective homebuyer hesitate.

So, to be clear, here's how the deduction works: You can subtract from your taxable income the interest paid on up to $1 million in mortgage debt. That maximum applies to the total amount of debt on a first and second home. Had there been a change, the deduction on a second home seemed particularly vulnerable, and there was some talk of reducing that $1 million limit.

This good news comes on top of a series of positive reports about the health of the housing market. Prices have been rising, more homes are being built and the prospects for a new plunge in home values are diminishing by the day. With the uncertainty over tax rates resolved for the long term, it's much safer for homeowners, builders, employers and lenders to place their bets. That could propel improvements in the broad economy that would reduce the risk of a home purchase.

But let's not go overboard. You won't find any experts predicting a home-price boom like the one in the middle of the last decade. While there may be hot markets here and there, it's just not possible for home prices to rise faster than incomes indefinitely, because at some point there are not enough people who can afford those pricy homes. Many of the people who ignored this fact and bought at the peak a few years ago are still deep underwater, owing more than their homes are worth after prices collapsed.

Over the long run, home prices rise at about the inflation rate, which averages around 3% a year. Add interest charges, taxes, maintenance, insurance and other costs of ownership and a home is likely to be a money loser. Even if it does turn out to be a profitable asset, it's unlikely to beat alternatives such as stocks over the long term.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs