A mortgage credit certificate -- also known as an MCC -- can improve your ability to qualify for a mortgage or increase the loan amount you can afford. In short, an MCC provides a tax credit for a certain portion of your interest expense -- usually 15% to 50% -- which is subtracted directly from your tax bill.
For example, if you paid $8,000 in mortgage interest and have a 25% MCC, you receive a $2,000 credit ($8,000 (interest) * 25% (MCC) = $2,000 (tax credit)), which reduces the federal tax you owe for that year. Paying less in taxes enables you to spend more on your monthly loan payment and increases the mortgage you qualify for.
Review How an MCC Works
One of the positive features of most MCC programs is that you receive the credit as long as you live in your home and your mortgage remains outstanding. Assuming you meet these conditions, you are not required to renew the MCC annually.
Additionally, you are also not required to re-apply for the program every year. As long as you continue to live in your home and pay your mortgage on time you should continue to receive the MCC every year when you pay your taxes.
In some cases you may be able to keep an MCC in place even if you refinance your mortgage. In this scenario your current MCC program provider is required to reissue the certificate and provide a copy of the updated agreement to your refinance lender.
This requires cooperation and participation from your MCC provider so be sure to contact them before you apply for the refinance. If your income, assets, employment situation or other information changed since you were approved for the program you may no longer be eligible for an MCC.
We should also highlight that an MCC is usually only terminated if you sell your home, pay-off your mortgage or default on your loan.
In closing, it is always a good idea to contact your MCC provider with any questions regarding your program terms and eligibility guidelines.
MCC Guidelines for a Mortgage: https://www.fanniemae.com/content/guide/selling/b3/3.1/09.html#Mortgage.20Credit.20Certificates