If the tax deduction was not factored in, the limit would be lower than 28%. It factors in everything. Cost of food, clothing, transportation, entertainment, and yes, taxes too. It factors in everything that isn’t principle on the loan, interest on the loan, property taxes and insurance.
It’s not a precise calculation. It is simply a percentage that historically works.[/quote]
You’re absolutely right that it isn’t a precise calculation; that makes total sense. I was just considering that since the deduction specifically benefits higher tax brackets/bigger mortgages, and does NOT benefit low brackets/smaller mortgages, it results in a significant difference that is not captured in the typical affordability calculators.
From a quantitative viewpoint of what percent of gross income the mortgage holder has available on a yearly basis, the deduction should result in a significantly greater than 28% proportion being available to those folks. From your (and others’) comments, it seems more an empirically derived metric of probability of default, which is perfectly reasonable.
