An MCC will reduce the amount of federal income tax homeowners pay, thus giving them more available income to qualify for a mortgage. With an MCC, the qualified homebuyer is eligible to write off a portion of the annual interest paid on the mortgage as a special tax credit not to exceed $2,000 each year that they 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 multiplied by the annual interest paid. This credit reduces the federal income taxes of the buyer, resulting in an increase in the buyer's net earnings. Increased buyer income results in increased buyer capacity to qualify for the mortgage loan. The MCC has the potential of saving the MCC holder thousands of dollars over the life of the loan.
While all homeowners can claim an itemized tax deduction for mortgage interest, you can go a step further with an MCC. An MCC reduces your tax liability, dollar-for-dollar, by a percentage of the mortgage interest you pay.