| Mortgage Insurance (PMI) Deduction Passed in the 11th Hour by Congress! By Deb Sineni Congress has passed renewal for allowing a tax deduction for mortgage insurance you pay on your home loan. For some, in the long run taking MI vs a Piggy-Back loan may be more benefical, and possibly can cost less in the short run. How It Works Traditionally borrowers that didn't have 20% down were utilizing a 2nd loan (Piggy Back with the 1st loan) to keep them out of Mortgage Insurance being assesed on their financing. When you buy a home lenders determine you to be a higher risk if you do not have a 20% down payment. There are two ways you pay for that risk, either through Mortgage Insurance or a second Piggy Back loan. Mortgage Insurance premiums are based on your loan amount, amount of down payment and your credit score. In the past Mortgage Insurance was never tax deductible like the interest is from your mortgage payment, so really for most it was a no-brainer to utilize a Piggy Back loan to fulfill 20% in total for a down payment. MI Tax Deduction Important Notes 1) The tax deduction applies only to mortgages closed in 2007. If you have a loan that has mortgage insurance closed prior to 2007 you would have to refinance the loan to allow the deduction. 2) There are income limits to the deduction. You get the full deduction if your Adjusted Gross Income is a 100,000.00 or less. The amount you can deduct phases out signifigantly after that, and no mortgage insurance is deductable if you make more than 110,000. 3) If you take standard deductions instead of itemizing deductions, this new law does not make a difference for you. Most homeowners use itemizing rather than standard because it allows you to deduct the mortgage interest and real estate taxes paid. Generally speaking the mortgage needs to be at least 130,000 for itemizing to make financial sense. MI vs a Piggy Back Loan When deciding between Mortgage Insurance and a Piggy Back loan you need to really ask yourself how long you think you will be in the home for and crunch the numbers both ways. Mortgage Insurance can be removed in time, either by appreciation in value and/or a declining principal balance. In comparison you can't cancel a Piggy Back loan. You pay it until it is paid off. Finally, consult with your tax accountant to make sure you can fully take advantage of this historical new tax law. |
| Mortgage Insurance (MI) Tax Deduction Renewed for 2008 |
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