Owning a home is central to the American Dream, but it was that dream of homeownership and the trillions of dollars of mortgage debt people owed that helped trigger the financial meltdown and the Great Recession.
Do widespread homeownership and mountains of debt need to go hand-in-hand, though? What if we made homeownership less debt-heavy? U.S. Rep. Tim Ryan, Democrat of Ohio, has taken an innovative step in that direction.
First, some background. U.S. tax policy essentially begs families to take on bigger mortgage debt. The mortgage-interest tax deduction is one of the most commonly used provisions in the tax code and one that subsidized mortgage debt to the tune of $68 billion in 2014. Everyone loves this deduction because it makes owning a home a bit less expensive, but it does so by rewarding more debt. And no one wants to be in debt.
The bill is called the Building Equity for the American Middle-Class Act (BEAM Act). It creates a $500 tax credit to families who put an extra $1,000 toward principal each year beyond what is required in a fixed-rate mortgage. BEAM will help families build equity in their home, pay down their mortgage more quickly, create personal wealth, and relieve the stress of debt.
In Franklin County, seat of Ohio's state government, a new homeowner who buys a house today for $130,000 would own their home outright in less than 27 years, not the usual 30, using the Ryan credit. And they would save $18,000 over the course of their mortgage. That's real money.