Romney’s deduction cap would touch sensitive tax breaks

[Lasher]

36. OK let's take a closer look.

Your monthly mortgage payment -- including principal, interest, real estate taxes and homeowners insurance -- should not be more than 28 percent of your gross monthly income (before taxes).

Your total monthly debt obligation should not be more than 36 percent of your gross income. Total debt includes the mortgage payment plus other obligations such as car loans, child support and alimony, credit card bills, student loans, condominium association fees. (Note: Government and certain other lenders may be more lenient.) This is your debt-to-income ratio.

http://loan.yahoo.com/m/basics6.html

You cited a 36% maximum of monthly gross. That is improper unless you take into account the additional liabilities mentioned in the second paragraph above. You didn't mention this. For the sake of simplicity, and especially since you seem to cherish honesty, let's use the 28% maximum.

I said you would need a gross income of roughly $150K in order to afford a $500K mortgage (28% of $150,000 = $42,000 ÷ 12 = $3,500 maximum monthly payment).

Now let's have a look at that $500,000 mortgage mentioned in the OP. I used the calculator to be found here. Home value and loan amount = 500,000, loan purchase = new purchase, interest rate = 4%, loan term = 30 years, property tax = 1.25%, PMI = 0.5%. That leaves us with a monthly payment of $2,907.91

Therefore, upon closer examination, it appears you would only need an annual income of about $125K to afford a $500K mortgage (28% of $125,000 = $35,000 ÷ 12 = $2,917). That would put your income in the top 10%, not the top 5% as I first projected. I hope to be forgiven for this exaggeration, particularly since I did say, roughly $150,000.

If you have a $500K mortgage, and if your household income is not in the top 10%, you are engaging in risky behavior that should not be encouraged with tax incentives. And if you are in the top 10%, congratulations. But you don't need a tax break in that case either.