By Richard Cohen

When you purchase a home and obtain a mortgage, which interest rate would you choose: 4.125% or 5.000%? Easy answer. Did you know there is a program that will effectively provide you, the homebuyer, with a lower than market interest rate? Many realtors and even loan officers do not know about i. And the city of Chicago is eager to offer the program to qualified homebuyers. The program is called Tax Smart.

For many homebuyers the mortgage process is something of a puzzle. The one item that seems understandable is the interest rate. This is the percentage of the loan amount that you will pay to the lending bank. Here’s the simplicity: the lower the rate, the less money out of your pocket.

Tax Smart is a Mortgage Credit Certificate (MCC) program that allows homebuyers to benefit with a lower than usual mortgage interest deduction and pay less (in taxes) to the government.

Specifically, here is an example of how the program can benefit you during the time you own the property. Let’s say a single individual, who makes $90,000 per year, purchases a property for $300,000, and makes a twenty-percent down payment on a thirty-year fixed mortgage at 5.000%. The total payment (principal, interest, tax and insurance) would be $1,703. Without the MCC applied, the tax payment—only considering the mortgage interest deduction—would be $15,681. With the MCC, the tax payment would be $14,181, a yearly savings of about $1,500. A five-year savings of about $7,500, and a ten-year savings of about $15,000. For those rare home buyers who live in the property for thirty years, a savings of about $45,000!

Most important, since this savings comes from the interest deduction, you can estimate how this translates to monthly interest and payment savings. If the yearly interest savings (in the initial year) is $1,500, then the monthly savings is about $125 per month. So your monthly payment is now $1,578—all from less interest. And so we can determine what interest rate (what I call the effective interest rate) would get you to the lower payment. In this case, 4.125% is about right.

There you have it: 5.000% versus 4.125%?

How do you apply for this program? First, find a loan officer who works for an affiliated lender. Next, meet with the loan officer and ask about the program. Last, the loan officer can assist with the application. There is a $225 application fee to be paid at closing. It’s that simple.

Finally, homeowners who want to sell their property should investigate if their home falls in a targeted area. Knowing about and marketing this program may attract the right buyer and be the difference in selling at a preferred price as well as in a shorter period.

Richard Cohen is a licensed loan officer with Perl Mortgage in Chicago, Illinois. You can contact him at 312-651-5356 or at

©Richard Cohen 2011

The information in this article is meant to give an estimate and approximations for terms and monetary savings. Please consult a qualified tax adviser for individualized tax benefits. Please ask your loan officer for specific terms regarding your loan. PERL Mortgage is an Illinois residential mortgage licensee (MB0004358) and equal housing lender.