Private Mortgage Insurance (PMI) - Tax deductible for 2007!

Most lenders consider buyers who make a down payment of less than 20% to be riskier borrowers. To cover that risk, borrowers often have to get mortgage insurance  (PMI) or a piggyback loan.

Mortgage insurance covers the cost for the lender in case of a foreclosure. Borrowers who choose a piggyback loan do not need insurance, but they have two home loans-one for 80% of the home's value and a second mortgage at a higher interest rate to cover the rest of the loan amount.

Piggyback loans often are referred to as an 80-10-10 or an 80-15-5 depending on the loan amounts and down payments. An 80-15-5, for example, means a borrower is getting an 80% loan, a 15% piggyback loan and making a 5% down payment.  Piggybacks have had an advantage over loans with mortgage insurance because combined payments are a little less and interest on both loans was tax-deductible.

Now that PMI or mortgage insurance is deductible, it may reduce the need for piggyback loans.  Borrowers have to consider how long they'll stay in their homes, whether they'll prepay or make extra payments and their comfort level.

Borrowers are stuck with a piggyback loan until it's paid off, but they can cancel mortgage insurance once they've reached 20 percent of their home's value. How long that takes depends on the size of the loan and the down payment.

As always....some restrictions apply!  Conditions, such as income requirements, are attached to the mortgage insurance tax-deduction as well as taxpayers must itemize deductions on their tax returns and not just take the standard deduction. Right now, the program also is only available to mortgages closed in 2007, though many believe Congress will extend it.

Realtors cannot give legal or financial advice....only opinions.  Please consult your tax advisor.  Restrictions apply.