PMI tax deductible in 2007 - New legislation allows taxpayers who itemize their deductions to deduct premiums paid for mortgage insurance - which typically is required when home buyers purchase their homes with less than 20 percent down. Currently, only the interest paid on ones mortgage is deductible if the taxpayer itemizes deductions.Mortgage insurance can be avoided by utilizing a second mortgage for the amount needed to complete your transaction above the standard 80% loan to value of the first mortgage. An example is as follows: you are purchasing a home for $200,000. You plan on obtaining a mortgage for $180,000 or 90% loan to value. Instead of obtaining a 90% LTV mortgage and paying mortgage insurance, you can simply obtain a first mortgage of $160,000 and a second mortgage from the same lender for $20,000 and avoid the mortgage insurance all together. This has become a commmon way to approach a high loan to value transaction. Ask your mortgage professional to explain the cost benefits of each approach so you can make the decision that best suits your particular situation.
The new tax code was written so that mortgage insurance will be deductible if you purchase a home in 2007, but will NOT apply to mortgage insurance on existing mortgages.
Based on the new legislation passed December 9, 2006, the provision is effective for transactions closed after December 31, 2006. MI premiums paid between January 1 and December 31, 2007 may qualify for tax deductibility on borrowers’ subsequent federal tax returns as follows:
Borrowers with adjusted gross incomes below $100,000 may deduct 100% of their MI premiums.
Deductions are phased out at 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000.
This new legislation helps low- and moderate-income Americans overcome barriers to homeownership. By making mortgage insurance tax-deductible, Congress is addressing the key issue of housing affordability for many homebuyers.
Depending on your credit, you may also qualify for a loan with less than 20% down with no separate mortgage insurance payment required.
There is an alternative to high rate second mortgages (commonly called combo loans) and hard to understand mortgage insurance premiums. It's called Lender Paid Mortgage Insurance, and allows you to roll a mortgage insurance premium into your mortgage payment. Depending on your credit, this can be a more convenient and less expensive alternative to mortgage insurance.
If your credit is less than perfect, we have a variety of programs which can allow you to borrow up to 100% of the value of your home with no mortgage insurance at all. In many cases, the total monthly payment on one 100% loan with no mortgage insurance is lower than an 80/20 combo payment for a borrower with slightly higher credit!
Is PMI tax deductible now? - Congress just past a bill last year called the Tax Relief and Health Care Act of 2006. One of the important tax revisions that got introduced for the tax year of 2007 was the homeowners ability to deduct PMI. There are however important restrictions and regulations to abide by when taking advantage of this relief for the 2007 tax year.
PMI - Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
TAMI or Tax Advantage Mortgage Insurance is a mortgage offering where the mortgage insurance is rolled into the rate.
PMI, or Private Mortgage Insurance, is typically provided by a private company and paid for by the borrower; PMI is intended to protect the lender against loss if the borrower defaults on the loan. PMI is only required for some mortgage loans.
Insurance against loss provided to a mortgage lender in the event of borrower default. In most cases, the borrower pays the premiums.
In many cases, the borrower can avoid paying private mortgage insurance by having two loans, a first and a second. The interest on the second mortgage, though at a higher rate than the first mortgage, is tax deductible, while PMI is not.
Your Home Value Has Increased?
When making mortgage payments, most of the payments during the first few years are finance charges. Therefore, it can take 10 to 15 years to pay down a loan to reach 80 percent of the loan value. If the home prices in your area are rising quickly, your property value may increase so that you can reach the 80 percent mark a lot faster. Your property value could also increase due to home improvements that you make to your home.
When your home value has increased, you may be able to cancel PMI on your mortgage. Although the new law does not require a mortgage servicer to consider the current property value, you should contact them to see if they are willing to do so. Also, be sure to ask what documentation may be required to demonstrate the higher property value. Be prepared to pay for a new appraisal.
The most common loan scenario is the 80/20 combo. That would equate to a first loan of 80% and a second loan of 20% of the purchase price. If you have the right mortgage professional working for you they will do the math on both a 100% one loan and the 80/20 combo and let you make the decision that makes better sense for you.
Statistics have shown that homeowners with more than 20% equity invested in the property are less likely to default on the loan in a soft real estate market. Banks bear a higher risk when granting a loan of more than 80% of the value of the property. Therefore, Private Mortgage Insurance is almost always required by banks. Although the homebuyer often pays for the PMI premium, some banks offer loan programs where the banks pay for the premium.
PMI premium is a monthly recurring expense for the homeowner (unless the mortgage is a lender paid PMI mortgage). The premium is calculated base on the loan to value ratio (loan amount divided by property value). The higher the loan to value over 80%, the higher the monthly Private Mortgage Insurance premium. After a homeowner takes a mortgage loan with a PMI feature, there are three ways to eliminate the banks requirement of buying PMI. The obvious is to refinance into a mortgage without a PMI feature.
The second way is to pay down the mortgage balance to below 75%, but this can take years to accomplish. For example, a homeowner of a $300,000 property with a $270,000 (90% loan to value) 30-year mortgage at 6% interest rate will not be required to carry PMI when the loan balance is paid down to $225,000 (75%), but it would take about 10 years to pay down to pay a 90% loan to value ratio to 75%.
The third is to hire a licensed appraiser to appraise the property. If the new appraised value has appreciated enough to make the loan balance below 80%, the homeowner is no long required to purchase PMI on the loan. Take the example of the above homeowner of the $300,000 property with the $270,000 mortgage, if one year later a new appraisal shows the property has appreciated enough to support a value of $333,360, with the loan balance a year later of $266,684 and a loan-to-value ratio of below 80% ($266,684 divided by $333,360 = 79.9%) the homeowner will no longer be required to maintain PMI.
For homeowners who already committed to mortgage loans with PMI feature, the aforementioned are the only ways to eliminate buying PMI. For home buyers who are in the process of shopping for mortgages, in a low interest rate environment, a piggyback is often used to get a homebuyer with less than 20% down payment into a house. In a high interest environment, paying the monthly PMI premium may make more economic sense than paying the high interest second mortgage in a piggyback loan structure.
PMI adds to the monthly expenses of a homeowner and can be very expensive depending on the loan-to-value ratio. While there are other methods to structure a mortgage so that PMI can be avoided. PMI nonetheless is a very useful and effective tool in helping homebuyers with little or no down payment to purchase a home. When choosing a low or no down payment mortgage, besides borrower-paid PMI, lender-paid PMI, or piggyback loans, a homebuyer should also consider other factors that are unique to his situation, such as the loan to value ratio, the number of years he intends to live in the property, the historic and expected rate of appreciation in the area where the property is located, and the current and expected future interest rate climate. All of these, amongst others, should play a role in deciding on the best mortgage loan, with or without PMI.
In some cases, PMI may be more beneficial than a piggyback loan. Have your lender review your situation both ways before making a final decision.
MIP stands for "mortgage insurance premium" and is required on FHA loans. PMI, or "private mortgage insurance," is used with conventional loans.
Sometimes homeowners mistakenly confuse MIP or PMI with additional mortgage insurance which some lenders offer. That additional insurance pays off the loan for you if you die or become disabled - MIP and PMI do not provide any such benefits for the homeowner.
Loans such as Fannie Mae's My Community Program offer reduced PMI premiums to qualified borrowers.
No PMI loans are becoming increasingly popular. Loans are offered at a higher rate of interest. Taking tax benefits into consideration, it makes the effective interest rate much lower.
PMI is not tax deductible.
Some lenders will advertise that you need to refinance in order to remove PMI. While it is true that if your home has increased in value since your purchase refinancing will probably due the trick but there are also other ways to remove the requirement of PMI without refinancing. If the removal of PMI is your only motivation to refinance then it is probably not in your best interest.
PMI may be better alternative today with interest rates on the rise. Payments may be less with PMI than with popular alternative programs. Interest rates with PMI are usually lower while with the other programs rates are higher. PMI may be cancelled when loan amount reaches less than 80% homes value which means your payment will be reduced. Borrowers should look at their future plans when deciding on a loan program with or without PMI.
Here is a list of a few top Private Mortgage Insurance Companies:
1. Genworth (Formerly GE)
2. PMI Mortgage Insurance Company (PMI)
3. United Guaranty Insurance Company (UGI)
4. United Guaranty Residential Insurance Company
5. Mortgage Guaranty Insurance Corp. (MGIC)
6. Radian Guaranty
7. Republic Mortgage Insurance Conpany (RMIC)
8. Triad Guaranty Insurance
9. Home Guaranty Insurance Corp. (HGIC)
10. CMG Insurance Group (Credit Union)
11. Integon Mortgage Insurance Company
12. Verex Mortgage Assurance, Inc.
As a general rule, it's best to not have a mortgage payment and include PMI.
Private Mortgage Insurance, or PMI, is paid monthly on amounts borrowed over 80% of the purchase price. The amount of PMI paid is higher for loan amounts that are a larger percentage of the purchase price.
Though PMI is not required when your loan hits 80%, it’s Not Always Automatic
Not all people have the convenience of having their PMI automatically cancelled. The Homebuyer’s Protection Act that requires lenders to do this does not cover loans that closed before July 29, 1999. It also does not cover VA loans or FHA loans. So be aware that you might not have someone else taking care of this for you. Check it out!
Lender Paid Mortgage Insurance (LPMI) - Lender Paid Mortgage Insurance or LPMI is a way to avoid paying traditional mortgage insurance. In return for a small increase to your interest rate, the lender will pay the mortgage insurance for you.
This benefits you the borrower in several ways:
1. The payment on this type of loan is usually lower than a no PMI loan or traditional loan with Private Mortgage Insurance (PMI).
2. Generally you will be in a better tax situation due to the increase in interest paid.
Lender paid mortgage insurance should be carefully looked at before obtaining. If you plan on keeping your home for the life of the loan, you are locked into a great fixed interest rate and never have any plan of refinancing that mortgage then it may be better to pay the PMI instead of the Lender paid mortgage insurance. With the lender paid mortgage insurance you are stuck with the increase to your interest rate for the life of the loan and with the PMI you are able to drop it at either 78% or 80% (depending on your lender and their guidelines) loan to value of your home. Therefore, it could end up costing you more with the LPMI than it would with the regular PMI. However, most people sell or refinance within five years so the LPMI is a nice option for many people.
If simplicity is one of your goals, a LPMI loan might benefit you with eliminating the hassle of paying two loans. Consult with your loan consultant as to when the Mortgage Insurance can be waived.
PMI Payment Options - Private mortgage insurance can be paid on either an annual, monthly or single premium plan or can be waived by taking higher interest rate. Premiums are based on the amount and terms of the mortgage and will vary according to loan-to-value ratio, type of loan, and amount of coverage required by the mortgage company. Be sure to ask your loan officer if your loan program offers different payment option.
Private Mortgage Insurance (PMI) - Private mortgage insurance is a type of insurance that helps protect the mortgage company against losses due to foreclosure. This protection is provided by private mortgage insurance companies and allows mortgage companies to accept lower down payments than would normally be allowed.
If you elect to do a lump sum payment of PMI at the beginning of the loan, you can often finance it as part of your mortgage and end up paying less per month than if you paid a monthly premium.
When the balance on your mortgage falls below 80% of your home's value, you may be able to have the mortgage insurance dropped. Discuss the alternative ways to do this with your mortgage professional
Your PMI payment is not tax deductible so it is in your best interest to avoid it and use a program such as the 80/20 loans available. The interest on these combo loans is 100% tax deductible.
When you are required to pay PMI ask your mortgage professional what options are available for payment of the PMI, if any. When you choose to pay the PMI in one lump sump at the beginning of the loan many times you can save some money by choosing this option as opposed to paying it monthly through your mortgage payment. Also, by lowering your term from 30 years to 25 or 20 years this will generally reduce your PMI amounts also. The lower the term of your mortgage generally the less you will pay for PMI.
Don't confuse mortgage insurance with hazard or home owner's insurance. Mortgage insurance does not benefit the consumer in any way. It is simply a policy to help insure the lender against the borrower defaulting on their loan.
You will usually pay mortgage insurance on a loan that is 80% or more of the value of the home. For this reason, it is common for borrowers to split their loan into two separate loans - one for 80%, and one for the rest of the loan. This prevents the need for mortgage insurance, although you will be paying a higher interest rate on your second mortgage, which will still cost you more.
There are several options available for paying PMI. The traditional form of PMI is paid monthly by the borrower. There is also an option to increase the interest rate to cover the payments. This is called Tax Advantage MI. The increased rate has about the same payments but since it is included in the mortgage interest rate a portion of the payment is tax deductible. There is also the option to make a one time initial payment for the PMI, and in some scenarios this payment can be included in the loan amount.
Since the PMI payment is not tax deductible, talk to your mortgage broker about spliting your mortgage into two different liens to avoid payment PMI.
You can also ask your mortgage professional if they have programs that allow the lender to pay the private mortgage insurance premiums for you in exchange for a slight increase to your interest rate.
Paying for PMI Upfront? - Can I pay for PMI upfront?
You can pay for your mortgage insurance premium up front on most conventional loans. This is very worth while to look into and ask your mortgage professional about. While you will have to either pay for this large amount of money up front or finance it into your loan amount, many times you can save thousands of dollars by paying for the entire premium up front versus paying it monthly. Also, consider looking into a lower term for your financing than 30 years. By financing on a 25, 20 or even a 15 year mortgage or lower you can usually save a lot of money on PMI charges.
There are several alternatives to paying PMI monthly. One alternative is some times referred to as Tax Advantage MI. This type of MI is paid for in the interest rate. An adjustment is made to the interest rate so that you have approximately the same monthly payments but the increased interest rate means more of the payment is tax deductible
Some types of loans require you to pay for mortgage insurance up front. A FHA loan is one example of this, where you are charged an Up Front Mortgage Insurance Premium (UFMIP) that is 1.5% of the loan amount. This is actually in addition to the monthly mortgage insurance you pay. However if you sell, refinance, or payoff you loan within the first 5 years you will receive a portion of the UFMIP back in the form of a refund.
One tool that many savvy home buyers use is to have the seller pay for their PMI as a single upfront charge. For this to work you will need the services of a Realtor good with contracts and a seller that is willing to negotiate. Seller Paid Private Mortgage Insurance is usually accomplished through the use of a seller concession, where the seller helps the buyer with some or all of the closing costs.
Ways around Private Mortgage Insurance (PMI) - When financing more than 80% of the value of the home you are purchasing or refinancing, there are several ways to avoid having to pay for costly private mortgage insurance.
One of the easiest, and often cheapest ways to avoid paying PMI is to do a simultaneous closing, where the borrower finances 80% of the purchase price with one loan, then finances the other 20% with a 2nd mortgage. Often times, the payments on the two mortgages end up less than if the borrower had just one loan with PMI. Plus, the interest on the 2nd could be tax-decuctible.
Another option becoming popular with lenders is to offer some form of lender paid MI. The most common way this is accomplished is through an adjustment to the interest rate. By increasing the interest rate the lender is covered for the additional risk, and the borrower has a tax advantage compared to traditional PMI.
If you have any cash to put down on the purchase, you can limit or even eliminate the need for mortgage insurance (MI) altogether. If you take out a mortgage for no more than 80% of the purchase price or appraised value you will not need MI. If you are putting down 5, 10 or 15% down you will be looking at reduced mortgage insurance rates compared to someone taking out 100% financing.
Some savvy buyers will negotiate Private Mortgage Insurance to be paid by the seller as a condition of the purchase.
Be sure to ask your Realtor or Mortgage Broker for more advice on seller concessions and single premium Private Mortgage Insurance.
One way to not get rid of PMI nor avoid it, is to finance your mortgage on a lower term than a 30 year mortgage. Lowering your mortgage term to a 20 year mortgage, or even better yet a 15 year mortgage, will reduce your PMI amount drastically. Not only will it reduce your PMI amount by a lot but it will help you to build equity in your home much quicker and pay your house off many years sooner. This is a very wise option if you can comfortably afford to do it.
LPMI Lender Paid Mortgage Insurance - Mortgage Insurance is often required when the amount of money you borrow exceeds 80% of the value of your home.
Until very recently, the only way to borrow more than 80% of the value of your home was to pay an extra mortgage insurance premium each month on top of your regular mortgage payment, or to arrange for a "combo loan", commonly called an "80/20"
Lender Paid Mortgage Insurance allows the lender to pay any applicable mortgage insurance premium directly, which means all you need to pay is your one mortgage payment, instead of one mortgage and one insurance payment or two separate mortgage payments.
In addition to the common 80/20 loan, many lenders now offer a 75/25 mortgage program, which usually has a slightly lower interest rate.
In order to obtain LPMI, Lender Paid Mortgage Insurance, instead of traditional Private Mortgage Insurance your interest rate will be increased slightly. By paying a little higher interest rate and no mortgage insurance, you will save money from your monthly mortgage payment as opposed to if you were to obtain a loan that had PMI added on to your payment.
Mortgage insurance premiums can now be tax deductible, starting with the 2007 tax year, so consult an accountant and your loan officer to find out if LPMI is the right way to go. By having the lender pay these premiums, you may give up the tax deduction.
Ask your mortgage consultant to print out a comparision of Lender Paid MI, Regular MI, and 80/10-20% financing to decide which program works best for you. There is an household income limit for allowing MI to be fully tax deductible of 100k. Consult with your tax advisor as well.
Ending Your PMI Early - Private mortgage insurance, or PMI, is the safety net of the lender. PMI benefits lenders because it guarantees payment on the balance of loans not covered by the sale of foreclosed properties.
If a borrower makes a down payment of 20% of the cost of the home, the lender can generally trust that he will make his mortgage payments faithfully to protect a large investment. In this case, the lender comes out ahead if the borrower is forced to foreclose on his house, because the lender loans 80% of the cost of the house, but will probably recover 100% of the cost of the house. But, if the borrower makes a smaller down-payment, such as 3%, 5% or 10%, and borrows the rest, and then defaults on his loan, the lender loses money.
PMI - The New Rules - PMI or Private Mortgage Insurace is a way for lenders to protect themselves in higher risk loans. PMI usually kicks in when a loan is more than 80% of Loan to Value (LTV). There are alternatives to PMI but make sure you know of the new tax benefits that PMI allows on purchases or refis made after January 1, 2007.
The biggest deductions you get under the new PMI rules is when your AGI (adjusted gross income) is under $100,000 for couple files jointly or $50,000 for filing as a single person. You are then able to deduct 100% of the PMI you have paid over the course of the year. Above that amount then your deduction decrease by 10% for every $1000 AGI above the $100,000 or $50,000 cap. In other words, the deduction disappears for those couple who have a AGI above $110,000 or single filers above $60,000.
One caveat concerning the new rules and tax deductibility of PMI. It is only available for new purchases or acquisitions. Refinances are not eligible for tax deductions under the new tax laws.
PMI, also known as Private Mortgage Insurance is a type of insurance that protects the lender in the event that you are unable to make your mortgage payments as scheduled and your home is foreclosed upon. This insurance does not protect you the buyer or save you from losing your home, but it protects the lenders investment. PMI is normally required anytime you do not have 20% down or 20% equity in your home. There are some ways around PMI that may be able to save you money off of your monthly mortgage payment, however with the new PMI rules that went into effect on January 1st of 2007, you should consider possibly wanting to pay PMI versus the other ways to get around PMI. One such way to avoid paying PMI, probably the most common way, is to obtain a combo loan. A combo loan is a first and second mortgage, where your first mortgage is 80% of the value of the home and the second mortgage is the remaining percentage of the loan that you are over 80%. These types of loans are still going to be very good options for many people, but it is going to depend on each person's financial goals on which option is going to be best for them. Ask your mortgage professional for more information about PMI and the new rules and also if PMI might be right for you.
Ways To Avoid PMI On My Mortgage - In todays market, there are many ways to avoid private mortgage insurance (PMI) even when you dont have the standard 20 percent down payment.
Ask your mortgage professional to prepare a comparison of Lender Paid MI, Regular PMI, and combo financing such as an 80/10 loan. You can then decide which option works best for you.
One of the most popular ways to avoid PMI (Private Mortgage Insurance) is to do a "combo loan" or "piggyback". This PMI-avoidance strategy may also be referred to as an 80/20, because it essentially uses two loans, a first mortgage and a second mortgage, taken out simulataneously. By using two loans to purchase or refinance the home, your first mortgage may be limited to just 80%, thereby obviating the need for PMI/Private Mortgage Insurance, and a second mortgage for the remaining 10% or 20% (depending on you down payment) can be used to make up the difference in the purchase price or refinance amount.
Some lenders have LPMI which stands for Lender Paid Mortgage Insurance. Also, you can split your loan into two loans. This is usually called an 80/20.
Another way to avoid PMI is to obtain a mortgage from a sub-prime lender that does not charge PMI on their loans, even if the Loan to Value is over 80%. There are many lenders who do not charge PMI on their loans, however you will generally receive a higher interest rate on these loans. Usually, you can obtain 1 loan though with these types of lenders versus having to do a combo loan and obtaining 2 loans. Consult with a mortgage professional to see if this may be the best option for you. A quality mortgage professional will be able to work up multiple mortgage options so that the best choice can be chosen to meet your financial needs.
How and why to avoid PMI? - Private Mortgage Insurance or "PMI" is placed on loans with a Loan to Value of greater than 80%. This is insurance that the bank is taking out in case you fail to make your payments and they must foreclose. While a tax write-off in 2007, historically, it has not been. To date, the legislation making it a tax write-off has not been renewed. Thus, a combo loan is a better idea as the mortgage interest may be written off on your income tax.
Some programs like MyCommunity Mortgage offer reduced PMI which can actaully give you a lower payment than a split loan such as an 80/20. Once the principal balance of your mortgage is 80% or less than the value of your home, you can provide your PMI company with an appraisal showing so and they will remove your PMI without having to refinance.
Depending on your credit score, avoiding PMI could save you hundreds or even thousands of dollars per month.
There are a few ways to avoid PMI. One such way is to obtain a loan from a lender that does not charge PMI, regardless of your Loan to Value. Most sub-prime lenders are like this and they do not charge PMI. The reason that most of them do not have to charge PMI is because their rates are already adjusted based on a risk assessment level and their interest rates are generally higher than what conforming rates are. Sometimes obtaining a combo loan may be in your best interest, other times a sub-prime loan may be best for you, and other times it may just make more sense to take the lower rate and pay for the PMI. Your mortgage professional should be able to discuss your options with you and let you know what option seems best for you.
You can also avoid PMI with a mortgage program that has the lender pay your PMI. These lender paid PMI programs or LMPI are becoming increasingly popular with borrowers. The trade of for the lender paid PMI is a higher interest rate.
PMI may be fully tax deductible if your household income is less than 100k per year. Consult your mortgage professional for details.
What is PMI - What is PMI and why do I have to pay it? These are questions that has been around for a long time and very common for any homeowner to ask. PMI is also known as Private Mortgage Insurance. PMI is charged on conforming loans when a buyer does not put down a 20 percent down payment or greater. PMI insures the lender in case you default on your loan. So basically you are paying for insurance for the bank with this type of insurance.
PMI is required on Conforming and Jumbo Loans when the Loan-to-Value (LTV) is greater than 80%. The PMI premium can be paid upfront or monthly. The premium generally ranges from .25% to .90 of the loan amount depending on the LTV. PMI is not a deductible tax expense. PMI is commonly avoided by utilization of a 2nd mortgage (piggyback) in combination with the 1st mortgage so that the LTV will be 80% or less. The difference needed is then obtained through the 2nd mortgage ie: 80/10/10 or 80/15/5.
Some banks and lenders offer loans with no PMI. Don't be mislead as the premium is already built-into the quoted rate. The advantage is that you do not need to obtain PMI approval and because the PMI is added as an increase in the interest rate it is deductible. The disadvantage is that unlike traditional PMI it can not be dropped unless the borrower refinances.
One way to avoid PMI is to take out two mortgages. If your first mortgage is less than or equal to 80% of the purchase price, you are not required to pay mortgage insurance. Since you are not required to pay mortgage insurance on a second mortgage you can add a second mortgage for 20 percent of the purchase price for a total of 100 % financing without paying mortgage insurance.
Now days PMI pricing is risk based. A customer with a 620 FICO score a a bankruptcy should expect to pay more for PMI than a customer with a 720 FICO score can clean credit history. Be sure to ask your mortgage agent about the cost of your PMI and discuss any options to improve it.
Private Mortgage Insurance policy premium is a recurring expense for the homeowner. The premium is based on the loan-to-value ratio (loan amount divided by property value). The higher the Loan To Value over 80%, the higher the monthly PMI premium would be. If a homeowner has a mortgage loan with a PMI feature, he can eliminate the bank's requirement of buying PMI by refinancing into a mortgage without a PMI feature.
Private Mortgage Insurance, also known as PMI, is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio — the amount of your mortgage loan divided by the value of your home — is greater than 80 percent.
PMI isn't a bad thing — it allows you to make a lower down payment and still qualify for a mortgage loan. In fact without PMI, many of us would not be able to purchase our first home.
PMI or Private Mortgage Insurance is easily avoided with an 80/20 loan.
The tax deductibility of the PMI is only for acquisitions or purchase loans. Refinance loans are not eligible for PMI write offs.
Private Mortgage Insurance (PMI) is also called Lenders Mortgage Insurance (LMI). PMI is paid by the borrower as insurance to the lender to compensate for the possibility that the borrower defaults and cannot repay the loan.
One recent change now makes PMI tax deductible for 2007. The tax deduction only applies to mortgages that are closed in 2007 and you only get the full deduction if your adjusted gross income is $100k or less per year, with no deduction if you make more than $110k yearly.
So far, this is a one-year deal; Congress would need to renew the deduction to make it stick for the ‘08 tax year and after.
Contact your tax professional or mortgage expert for more information on this and other tax deductions you may be eligible for.
Should I Pay PMI or the Higher Interest Rate - Should I pay PMI or go with the loan with a higher interest rate but no PMI? This is a choice many borrowers face when deciding on a loan. There are many pros and cons for each choice. Borrowers should talk to an experienced Mortgage Consultant or Financial Consultant to help with their decision.
Some savvy buyers will negotiate for the seller to pay the PMI as a one time up front charge. Be sure to ask your Loan Officer and Realtor if seller paid PMI is an option for you.
There are also some lenders that offer a lender paid MI program. On pay option loans they will usually increase the start rate of the loan.
You may also choose to do a combo mortgage like an 80/20 to avoid PMI. A combo mortgage carries with it a higher rate
on the second mortgage. Even with a higher rate second the borrower often comes out ahead when compared to a traditional loan with PMI.
There are also some loan programs now available that do one loan up to 100% with no PMI, ask your Loan Officer for more details.
PMI is not tax deductible, but mortgage interest is. You will want to take that factor into consideration when making your choice.
Some lenders pay the mortgage insurance on loans over 80% by raising the rate by a small fraction. This allows the borrower to get one loan and not having an additional expense which is not deductible on one's taxes.
Why do lenders charge PMI if your loan is above 80% LTV? Studies have shown that most foreclosures happen before the borrower has 20% of the mortgage's principal paid off. So, loans with an LTV of 80% or higher pose a greater risk to the lender.
There are loans out there where PMI is not required and your interest rate will not be effected as well. For example, keeping your LTV (loan to value) below 80% will allow you to not pay PMI with any loan, where it may just be a lender that does not require it.
Review your options when it comes to PMI. Currently it's tax deductible but it's on a year to year basis.
The decision whether to pay PMI or take the loan with the higher rate but no PMI take into consideration the fact that PMI is not tax deductible. A mortgage broker can help you compare the two choices.
Ask your loan officer about the No PMI Option
As of January 1, 2007, mortgage insurance is tax deductible for purchase and refinance loans for borrowers with adjustable gross income of $100,000 or less. Be sure to discuss this with a CPA or tax professional whether this can apply to your situation.
Private Mortgage Insurance (PMI) must be maintain until the loan balance falls below 78% loan-to-value (LTV) ratio. The decision on getting a loan with a higher interest rate or one with PMI depends partly on how long for the loan to reach 78%. Also, home owners tend to opt for mortgages with PMI if they intend to refinance in the near future.
There are some that feel that PMI deductions are temporary and others claim its here to stay. Consult with your mortgage professional about a 80/20 mortgage or a piggy back loan to compare choices.
How can I avoid PMI? - Many borrowers who have less than 20% equity in their home choose a combination first and second mortgage (referred to as a piggyback mortgage) to avoid mortgage insurance (PMI). The most common method of financing without PMI is an 80/20 (an 80% 1st mortgage and a 20% 2nd mortgage). Also available is LPMI or Lender Paid MI. These mortgages do not carry PMI, however, the interest rate is a little higher than normal. Typically the savings on a LPMI loan versus a low-interest loan with PMI is pretty high. The LPMI monthly payment will be lower.
LMPI, Lender Paid Mortgage Insurance, is one option to avoid PMI. By choosing to go with the LPMI, you will end up paying a higher interest rate for the life of the loan. So while your payment might be lower choosing the LPMI option over the traditional PMI option, you will be stuck with that higher interest rate over the life of the loan. Whereas if you chose the regular PMI option you would be able to have the PMI removed once you have 20% equity in your home.
Available not until recently, Mortgage Insurance, if you choose to get it on your loan, is tax deductible for the first 12 months of your loan term.
Some lenders have Lender Paid Mortgage Insurance (LPMI) on My Community products. These products require little to no money down on home purchases are backed by Fannie Mae, one of the two largest providers of mortgage backed securities.
Private Mortgage Insurance (PMI) is charged when the loan is over 80% of the value of the property. The borrower pays PMI to insure the lender against the loan not be repaid.
PMI explained - If your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain private mortgage insurance (PMI) with your lender. PMI protects your mortgage lender against any default on the home loan. Because of this protection you are able to purchase a home with a lower down payment.
PMI, also referred to as Private Mortgage Insurance, is a type of insurance that protects the lender against mortgage loan defaults by customers. Understand, that this insurance does not protect you as a homeowner in any way. PMI is not going to help you save your home if your home is foreclosed upon and PMI is not going to protect your home or it's contents if your home burns down, a tornado hits your house or any other disaster happens. Hazard insurance, also referred to as homeowners insurance is the insurance that protects you in case of fire, theft, etc... PMI will simply help you buy a home or refinance your home with little to no equity in your home. It protects the lender and gives them more protection on their mortgage loan to you.
Borrowers whose household income exceeds the limit for tax deductibilty of PMI can still qualify for Lender Paid MI. Lender Paid MI (LPMI) means the lender is paying the MI premium as part of your increased interest rate.
It should also be explained that PMI Private Mortgage Insurance has been made tax deductible for many American households for new mortgages in 2007. The tax deductibility of mortgage insurance allows borrowers who qualify to more easily compare single mortgages with so called "combo loans" or "80/20" financing.
Certain homeowners qualify for programs with reduced PMI. MyCommunity is an example of a program with reduced PMI.
Generally speaking, PMI drops off of your monthly payment once you have paid down your mortgage loan to 80% of the home value. In some cases, you will need to request in writing that the PMI be removed at this point. To understand the particular terms your lender has written into your mortgage, carefully review your mortgage disclosures or consult a mortgage loan specialist.
Another option to private mortgage insurance is called Lender Paid Mortgage Insurance. This means that the lender will give you a slightly higher rate instead.
As of October 1, 2007, PMI guidelines for interest only loans and for borrowers with lower credit scores have become highly restrictive. This has pushed many borrowers who would have used conventional financing to turn to government insured FHA loans.
Many of the PMI companies control the loan to value or credit score requirements that lenders can loan on. In 2008, several major MI companies are increasing their score requirements to insure 100% loans.
The Homeowners Protection Act of 1998 established rules for when a lender must cancel mortgage insurance. You can request the mortgage insurance to be dropped when your loan balance reaches 80% of the original property value if your payments are current. In most circumstances the lender must remove the mortgage insurance even if you don't request it when your loan balance drops to 78% of the original property value.
If you closed on your loan before July 29, 1999 and do not qualify for the requirements lenders must follow under the Homeowners Protection Act or if your home has appreciated significantly since it was purchased, you still may be able to get a lender to remove the mortgage insurance on your loan. Contact your lender and ask them if they will remove the mortgage insurance since your home is worth more than when you purchased it. They may agree to drop the mortgage insurance if you pay to have the house appraised to show that you have more than 20% equity.
The Homeowners Protection Act (HPA) applies to mortgages that closed after July 29, 1999. To qualify for the removal of mortgage insurance under the Homeowners Protection Act you must be current on your loan, not have had any payments over 30 days late in the last year and no payments over 60 days late in the last two years. Additionally, you may not have any second liens on the property like a home equity loan.
If you are purchasing a home and have less than 20% to put down you still may be able to avoid mortgage insurance. To do this you take out two loans. A first lien for 80% or less of the value of the home and a second for the remaining amount you want to borrow. This strategy known as a "piggyback loan" can have other advantages also.
Say you are purchasing a home with less than 20% down and you need to borrow more than the conforming loan limit. Instead of getting a "jumbo" loan and paying mortgage insurance you may be able to divide the amount you need to borrow into two loans with the first lien below the conforming limit and less than 80% of the value and a second lien for the remaining amount. Besides avoiding mortgage insurance you may get better terms on a "conforming" loan than a "jumbo" loan.
Lender Paid PMI Interest Rates - Buying your first home is an extremely emotional time for many people. Not only are you excited about finally owning your own home and the freedom that comes with it but you are also nervous about the monthly payments you are now responsible for.
If you are like most Americans you bought your home with little to no money down and facing the task of paying monthly mortgage insurance premiums, or PMI as they are often referred to. While PMI protects your lender from you defaulting on your loan it does little to benefit you, but you are the one paying for it! Sounds crazy right? Well the good news is that there are programs available to shift the burden of the PMI payments off of you and over to your lender. While this may seem like great news there are some drawbacks.
The first drawback is that the lender paid pmi interest rates are often much higher then a standard conforming loan rate normally is. The higher rate usually makes the payment the same but does offer you full tax deductibility for your mortgage interest payments.
Another drawback to using lender paid mortgage insurance is the higher interest rates and payments will never go away, this means that the higher payments will always be there for the life of the loan. This i unlike standard PMI which is removed by the lender once you have sufficient equity in your home, normally 20%.
However if you intend to stay in your home only a few years or know that you will be refinancing soon then a lender paid mortgage may fit into your financial plans. But if you are intending for your mortgage to be a long term loan then you may want to reconsider any lender paid PMI mortgages because the higher interest rates will cost you more then standard PMI in the long run.
Yes, I can remember the payment shock when I bought my first home. I told my wife we are used to paying $600 a month rent and now our new payment was over $1200.
It actually scared me, but we made the payment easily and really enjoyed the pride of ownership, not to mention how we amassed several thousand dollars in equity. It's worth it to own your own home and fire your landlord.
