Private Mortgage Insurance~
Your Questions Answered:
What is PMI? Private mortgage insurance is additional insurance required by lenders when a loan is made for more than 80% of a home's value. In this circumstance Lenders insist on PMI in case a borrower is unable to repay the loan, the lender is protected against default. The amount of PMI attached to a mortgage varies on multiple factors including loan term, loan type, and the amount financed.
When is PMI terminated? Termination of PMI occurs when your mortgage amount equals 80% of the original purchase price or appraised value at that time, whichever is lower. If you are current on your loan, lenders will automatically remove the PMI once your repayment amount is 78% of value. Some lenders will only require the insurance for 2 to 3 years at which time it will be cancelled.
Is PMI tax deductible? For homeowners who earn less than $110,000 adjusted gross, PMI is tax deductible for the 2007 tax year. At this point, the deduction only applies to mortgages closed in 2007. We will have to wait and hear if congress amends this deduction for 2008.
Can I avoid PMI? Other options do exist if a borrower has less than a 20% down payment. The use of a "piggyback" or second mortgage may eliminate the need for PMI. In this situation, a borrower obtains a loan for 80%. The remaining 20% is a combination of 5% or 10% down payment with a 15% or 10% second mortgage. The advantage to this approach is that mortgage interest payments are tax deductible.
Still have questions? E-mail me at kristinhill@kw.com
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