Private Mortgage Insurance (PMI) Now Tax-Deductible!

Good News from congress today!

Congress has changed tax law to allow PMI to be deducted from income taxes just like mortgage interest! To qualify, the household must earn less than $100,000 per year and the loan must be originated in 2007.

What is PMI? PMI, or Private Mortgage Insurance, is a monthly fee charged by lenders when a customer takes out a single loan for more than 80% of a home's value. In recent years, many people buying homes have had to take out second mortgages because they could not afford to put 20% down.

In order to avoid paying PMI of up to a couple of hundred dollars per month, buyers opted to take out 2nd mortgages like Home Equity Lines of Credit (HELOC), where the interest paid is tax-deductible. The down side to HELOC's, however, is that they are like credit cards, with interest rates that rise and fall with the Prime Rate.

So what does all of this mean to home buyers?

Primarily, it means that mortgage options that include standard Private Mortgage Insurance will now become much more competitive and attractive, especially as PMI can often be removed with sufficient property appreciation or declining loan balance, assuming timely payments.

Since clients traditionally have turned to "piggyback" second mortgages as a way to avoid mortgage insurance, this news is particularly welcome, as second mortgage rates have risen dramatically in recent years.

This piece of legislation still requires President Bush's signature, but at this time there is no indication that he will not sign it. Also, the current legislation applies to new loans closed in 2007 only, and as such, will require another act of Congress to be extended to 2008 and beyond.

Happy Home Buying!
Tim Andrews & Keith Zeiler
www.tk2homes.com