The Short Story on MI...When loan amounts are greater than 80% of a home's value, Lenders can require PMI (private mortgage insurance). PMI insures a lender's interests. If a loan goes into default and the costs of the bad loan are not covered by foreclosure and sale of the property, MI kicks in and pays the lender. In the recent past many mortgage professionals avoided mortgage insurance in favor of "piggyback" loans, but...
The number of loans with MI is on the rise. WHY?
Congress... thats why! An act of congress made mortgage insurance tax deductible for 2007. This is the government we are talking about, so certain restrictions do apply.
- Income limits. If you make more than $110,000 a year... no deduction for you!
- Congress will need to renew this deduction for future years. Stay tuned for more details.
So what's the big deal? RISK! The presence of mortgage insurance on a loan application can make a file more attractive to a lender. With all the recent attention on the sub prime market and new scrutiny of high loan to value transactions, a loan with MI represents a less risky investment. Lenders are not adrenalin junkies. They don't jump out of airplanes. They like solid ground.
How about the benefits? Let's name a few.
- Tax deductability.
- Predictability- When compared to second mortgages that may adjust or come with a balloon feature.
- Cost effectivness. In a rising rate environment like we have today, the cost of mortgage insurance is often times less expensive than other financing options for similar loan amounts.
Call me! Let's talk about MI. Does it make sense for you?
Kelli
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