What Are Mortgage Credit Certificates?

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  • Written By: Jim B.
  • Edited By: Rachel Catherine Allen
  • Last Modified Date: 04 December 2019
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In the United States, mortgage credit certificates offer potential homebuyers an income tax credit that can be used as income to both qualify for a mortgage loan and make mortgage payments. The amount of the credit is calculated as a percentage of the interest paid on the mortgage in a single year. Homeowners who qualify for mortgage credit certificates still can claim the remaining interest as a tax deduction. Qualifications for these certificates often depend on the location offering them, but limitations are generally placed on the income earned by the persons buying the home.

It can be difficult for those people looking to buy a home for the first time to amass enough capital to make the purchase. For that reason, mortgages are often used as a way for homebuyers to meet the costs of a home. Mortgages are loans that allow homeowners to pay for their home over a number of years through regular installments which include interest payments. Many homeowners may also qualify for mortgage credit certificates, which are essentially tax breaks that can be applied directly to the mortgage payments.


The way that mortgage credit certificates work is by taking a portion of the interest paid during a year for a mortgage and returning that to the homebuyer. This percentage is based on the type of home, the family living in it, and the rules and regulations of the locality offering the certificates. Since it is a tax credit, it need not be applied to tax obligations and instead may be used as income by the receivers.

For example, imagine that a family who owns a home through a mortgage and qualifies for mortgage credit certificates has paid $10,000 US Dollars (USD) in interest on their mortgage in the past year. According to local laws, they qualify for a credit certificate of 20 percent of the interest paid. As a result, this family receives a tax credit of $2,000 USD, which is 20 percent of $10,000 USD. The remaining $8,000 USD of interest payments may still qualify for an income tax deduction, if tax standards are met.

There are generally certain qualifications surrounding the issuance of mortgage credit certificates. The main one of these requires that the people who own the home must usually fall below a certain amount of income earned in a year. In addition, the tax credit cannot exceed the amount of income tax liability the borrower has incurred for the year.


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