Tax Implications of Private Mortgage Insurance (PMI)
If you are currently paying PMI (Private Mortgage Insurance) or have been holding off on purchasing a home because of the costs associated with it, there are potential tax savings which might be extremely beneficial to you.Private Mortgage Insurance is required by almost all mortgage lenders and brokers if you are purchasing a home and making a downpayment smaller than 20% of the purchase price of the home. PMI allows mortgage lenders to make up any shortfalls in the value of the property in case the loan goes into default and the property goes to foreclosure. PMI can add hundreds of dollars to your monthly mortgage expense without any added value to you the borrower.
In 2006, Congress enacted new tax laws which helped bring relief to many homeowners who were paying PMI. But these measures came with a few stipulations. In order to qualify for the full extent of the tax relief, the mortgage loan had to be originated no earlier than Jan. 1, 2007. The property must be your primary residence and your annual income must be below $100,000. If your income is more than $100,000 but less than $110,000 you still may be eligible for a partial tax deduction. If you income is greater than $110,000 you will not be eligible for the tax break. This law is extended until 2010 so there is time to take advantage of it now.
Because of no tax advantages of PMI prior to 2007, there was a slow increase in the number of "piggyback loans". Typically, these were two loans, usually 80%/20% or 85%/15% which allowed consumer to piggyback two loans on top of each other and avoid paying the dreaded PMI. The growth of these programs helped stimulate homebuying during the recent homebuying boom and gave younger individuals the opportunity to finance a property without paying PMI.
