MI Makes Sense
Mortgage insurance helps millions of families qualify for homes sooner. It’s safe, smart, and secure. And now it’s tax deductible.
Good for the homebuyer. Good for the lender.
Since MI helps protect lenders from the high costs of foreclosure, it allows them to accept a lower downpayment. This provides considerable benefits to the homebuyer:
- Take advantage of 100% tax deductibility. The law has finally passed. So, what was once an advantage of the piggyback loan is no longer. Eligible borrowers with adjusted gross incomes up to $100,000 can now deduct 100% of their 2007 borrower-paid MI premiums on their federal tax returns.*
- Buy a home sooner. With a lower downpayment. No need to wait until you’ve built up a 20% downpayment. With the protection of MI, many borrowers can qualify with a downpayment as low as 3%, or even lower.
- Buy more home. Or buy into a higher-priced market. Just do the math. A 5% downpayment on a $200,000 home is $10,000. A 20% downpayment on that same home is $40,000.
- Keep more of your savings. Sidestep a cash crunch by reducing your downpayment. With MI, you might even have savings left over to furnish your new home.
- Cancel borrower-paid MI when you’ve built up enough equity. Most lenders have simplified the process to allow borrowers in good standing to cancel their mortgage insurance when the home’s current value, determined by an appraiser, has increased so that the loan-to-value (LTV) ratio of the property is 75% or less. In addition, the federal Homeowners Protection Act (HPA) of 1998 requires that borrower-paid MI be cancelled automatically once the borrower has paid down the loan to an LTV of 78%, based on the original value of the property. And MI may also be cancelled by written request of the borrower once the principal balance is paid down to 80% of the original purchase price.**
*Based on transactions closed after December 31, 2006, and MI premiums paid in 2007 and allocable to 2007. Deductions are phased out in 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000.
PMI cannot provide tax advice. Taxpayers should consult their own tax advisors concerning applicability of this new deduction to their particular circumstances under the Internal Revenue Code and the laws of any other taxing jurisdiction. This information is not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties.
**Subject to the federal Homeowner’s Protection Act and applicable state law.
