What is the MCC Credit Rate?
MCC: With an MCC, the qualified home buyer is eligible to apply a portion of the annual interest paid on the mortgage as a federal tax credit, during each year that the mortgagors occupy the home as their principal residence. The portion or amount of the tax credit is equal to the mortgage credit rate on the MCC (20%) multiplied by the annual interest paid.
This credit reduces the federal income tax liability of the home buyer dollar-for-dollar, resulting in an increase in the home buyer’s net earnings. Increased home buyer income results in increased home buyer capacity to qualify for the mortgage loan.
In the example below, the credit amount is equal to the mortgage credit rate multiplied by the annual interest paid on the mortgage Loan in that given year.
For example: Mortgage Loan Amount: $200,000 Interest Rate: 5.50% Mortgage Credit Rate: 20% $200,000 x 5.50% = $11,000 (approximate interest paid in the first year) $11,000 x 20% = $2,200 (Calculated Mortgage Credit Amount)
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