Mortgage Insurance Becomes Tax Deductable

Mortgage insurance will be tax deductable for many homeowners that purchase between 2007-2010. The tax deduction will apply to home owners purchasing a home in 2007 or later. In order to receive the full deduction, the adjusted gross income must be $100,000 or less. Deductions are phased out in 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000.

In the past, homeowners were able to avoid paying mortgage insurance by structuring a loan as an 80% first mortgage and using a piggy back second for the remaining amount of the loan. Today, these loan programs are much harder to get and in certain situations are not available at all.

The amount of mortgage insurance a borrower pays will depend on the amount of the down payment, credit score and loan program. Borrowers should compare the difference between paying mortgage insurance and piggy back loans. Even if a payment is slightly more with mortgage insurance, the homeowner may benefit by choosing to pay the mortgage insurance with one loan because the mortgage insurance usually has a much shorter term than piggy back loans.

A homeowner needs to consider how soon they will be able to show the lender that they have 20% equity in the home. In most cases, the lender will remove the mortgage insurance once the homeowner can show they have 20% equity in the home. With a piggy back second the homeowner has the loan until the balance is paid off or refinances.

To find out more about the new tax deduction and determine if you can qualify, contact a certified public accountant.