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Tax Cuts and Mortgage Rates

tax reform and your mortgageNow that Congress has passed their Tax Cut bill last month it means there could be more money in your pocket. The average wage earner can see an increase of $20-$100 in their monthly take home money when the tax calculations come into effect in February. This is great for the economy as it will boost spending. The low unemployment has already started increasing wages in many fields.

The tax reform may not have direct impact on your ability to afford a larger home, but depending on your employer you may be receiving bonuses or increased wages that can be used to purchase your home. Even if you may not be getting a pay raise, you can still benefit from having more take-home pay to cover the other important parts of your life.

A key topic of the tax reform is the mortgage interest deduction. This is usually a major selling point of owning a home. In my opinion it pales in comparison to the opportunity of equity growth simply by being a home owner. Still it is worth mentioning that it is still available in the tax plan. There is a deduction limit of $10,000 for the combined deductions of property, state, and local income taxes. Also, new home purchases are limited to $750,000 worth of debt. Second homes are still included, but not second loans (ie: home equity lines of credit).

This good news for your pocket book may not be good news for interest rates. The Federal Reserve has been increasing the rate it charges to banks, and is now looking to do more since Americans are getting more disposable income. Interest rates are still lower than they were at this time last year, but that may not last long. Winter is usually a good time to look for a home because of reduced competition from other buyers. And now may be a better time to find a home before rates continue to climb.