Private mortgage insurance premiums now deductible January 17, 2007Posted by Jay Medina in News and Information.
Beginning this month, many home buyers who must purchase private mortgage insurance to obtain needed financing will finally be getting a break. Premium payments for such insurance are now tax deductible for borrowers who earn less than $100,000 a year. That tax break will usually save borrowers from $300 to $350. “That will go a long way to help homeowners and potential homeowners who simply want to own a piece of the American dream,” said Marc Morial, president of the National Urban League. The new law was passed by Congress on December 9.
Private mortgage insurance (PMI) is usually required by lenders for borrowers who contribute less than 20 percent of a home’s purchase price as a down payment. The insurance (protecting the lender) is quite expensive, but in some cases it’s the only way a home buyer can finance a home purchase. About one in five new mortgage loans within the past few years include mortgage insurance. However, there is a growing trend to take steps to avoid the cost of this insurance.
The most obvious and practical way is to hold off the purchase of a home until the family saves enough to make a 20 percent downpayment. But that is not always possible or advisable, due to personal factors. Other often used methods are to finance the down payment separately with a home-equity loan, or a second “piggyback” mortgage loan.