Alarm bells should be going off all over the state of Hawaii as proposals to avoid the "fiscal cliff" in January once again include the elimination - or the limiting - of the home mortgage interest deduction.
As if residents needed to be reminded, Coldwell Banker's Annual Real Estate Listing report issued Wednesday confirmed the obvious:
Hawaii is the most expensive place in the United States to own a home. The average four-bedroom, two-bath listing in the state is $742,551. Contrast that with Nebraska - the most affordable state - where the same home configuration goes for $145,360.
To put it simply, a four-bedroom house in Hawaii costs five times more than it does in Nebraska. Unfortunately, the average resident of Hawaii doesn't make five times more than the average Nebraskan.
So how do we afford a house here? Well, one of the main ways is through the mortgage interest deduction. If one puts a 20 percent down payment on that $742,551 house, he will have a $594,000 mortgage. If the loan carries a 4 percent interest rate, the monthly payment for 30 years will be $2,835.85.
At the start of that loan (the first 28 months), the mortgagee will be paying over $1,900 a month in interest. The interest will remain at over $1,000 per month until payment number 231 - that is 19-and-a-quarter years into the loan.
Currently, that interest can be deducted from one's taxable income. If one's tax rate is in the 20 percent to 25 percent range, that single deduction can make one to two mortgage payments per year for the homeowner.
Elimination of the primary residence mortgage deduction will deal a devastating blow to housing in Hawaii and other states that are expensive. Massachusetts, California, New Jersey and Hawaii will feel a much heavier impact than Nebraska, Iowa, Georgia, Kansas and the like.
Our congressional delegation needs to fight hard to protect this deduction. It is very hard to afford a home in Hawaii now. This change would make it impossible for many.
* Editorials reflect the opinion of the publisher.