People hate PMI, Private Mortgage Insurance.

If you put less than 20% down, your lender will require you pay PMI. PMI insures that if the lender has to foreclose on you, that he won’t lose any money.

PMI is expensive and it is NOT tax deductible. Where your mortgage interest payments are tax deductible, PMI is not.

That’s one reason 80/20 loans became so popular. The 80% loan didn’t require PMI, however, the 20% loan had a very high interest rate because in a foreclosure, that lender was at great risk of losing some money.

Now, however, federal tax legislation expected to be signed this week by President Bush makes the insurance premiums fully tax deductible for borrowers who take out a new mortgage-insurance contract in 2007, provided they have $100,000 or less of adjusted gross income. The deduction phases out for borrowers with incomes between $100,000 and $109,000.

Borrowers who are trying to decide between a piggyback loan vs. mortgage insurance should consider mortgage insurance if the rate on the home-equity loan that covers the amount of the down payment is more than 2 percentage points above the rate on the primary mortgage, says Keith Gumbinger, a mortgage analyst with HSH Associates.

The new law is kinda cheesy. Only new loans qualify. Your current PMI payments won’t become tax deductible. That’s weird.

Maximum income of $100,000, more or less. Totally weird.

The new law seems like a half step.

Advertisements