MI Benefits Borrowers – Now and Later
MI puts more people in more homes – and helps keep them there.
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MI is now tax-deductible.* One long-time advantage of the second mortgage versus MI was tax deductibility of annual interest. Until now. Thanks to a new federal law, eligible borrowers with adjusted gross incomes up to $100,000 may now deduct 100% of their 2007 borrower-paid MI premiums on their federal tax returns.
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MI is safe and predictable. A single fixed-rate mortgage, insured by MI, allows borrowers to lock in a predictable long-term interest rate.
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MI is immune to rising rates. When the Prime Rate increases, the MI monthly payment stays the same.
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MI is typically cheaper than a piggyback over the life of the loan. Interest rates on seconds are often adjustable and float with the prime rate. So piggybacks are more expensive than a year ago, and payments can jump significantly if interest rates increase. In contrast, MI premiums are fixed and tax-deductible. Plus borrower-paid MI can be cancelled once enough equity is built up, but a second mortgage has to be fully paid off.
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MI builds equity faster than a piggyback. Since more of each monthly payment goes toward reducing the principal balance, equity may accrue faster.
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MI is cancellable. A second mortgage isn’t easy to pay off fast – and it must be paid in full. But 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.†
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MI is thrifty. Unlike a piggyback, MI preserves access to future equity.
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MI is supportive. PMI offers counseling and other consultation services.
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MI is flexible. PMI offers a range of plans to fit borrower needs – such as annual, monthly and single-financed premiums.
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MI is easy. Borrowers have just one loan, one payment. No “balloon” surprises down the road.
*Based on transactions closed in 2007, and borrower-paid 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 Homeowners Protection Act and applicable state law. |
