Suddenly, Private Mortgage Insurance is back in vogue. If only by default.
The story background is well-documented in this Bankrate.com article from 2002. The article is five years old, but it still raises some salient points.
What the article doesn't highlight is that second mortgages such as home equity loans are typically sold to Wall Street, bundled in with sub-prime and "near-prime" loans.
Today, as the number of buyers for these higher-risk loan pools shrinks, some mortgage lenders have stopped offering second mortgages in order to reduce their overall lending risk.
PMI payments tend to be higher than their piggyback counterparts, but The Tax Relief and Health Care Act of 2006 narrows that gap using tax deductibility. The act grants itemized deductions for some private mortgage insurance (PMI) and government mortgage insurance (MIP) expense premiums paid in 2007.
For all loans originated in the 2007 calendar year, mortgage insurance is tax-deductible provided that two tests are met:
- The homeowner's household income is $100,000 or less in 2007
- The home loan is for a primary or secondary residence
For households earning more than $100,000, the deduction is phased out to the tune of 10% per $1,000 of additional income until it reaches 0% at $110,000
So, if a single person earns $90,000 in 2007 and buys a home using MI, the MI expenses are tax-deductible in 2007. However, there's a catch! Because the tax code is due to expire December 31, 2007, there is no guarantee that the MI will be tax-deductible in 2008.
As always, talk with your tax professional about how tax deductions work and whether you qualify for a PMI deduction.
As the number of mortgage products continues to shrink, PMI will continue to grow in popularity. The graphic/poll above will shift, too.
(Image courtesy: LendingTree.com)
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Interesting point. Also, very timely. I'm sure we'll the decline of piggyback or 80/20 loans.