Legislative Alert! Mortgage Insurance is Now Tax Deductible

One of the top complaints from first time home buyers is that pmi or mortgage insurance is not tax deductible. Guess what? Legislation has just passed a new bill which allows a home buyer to deduct mortgage insurance on a mortgage loan after January 1st, 2007 and is available to taxpayers who have adjusted gross income of less than $110,000. How will you benefit? Up to this point, most first time home buyers have opted for piggyback or combination loans such as 80-20 and higher interest rate one loan programs to avoid mortgage insurance and to get the full tax deduction on mortgage interest since mortgage insurance wasn't tax deductible. Now, you must take a look at the lower interest rate loans available with mortgage insurance to determine if one of these programs will better than the no pmi loan options.

Let's take a look at an example. Let's say, you want to purchase a $200,000 home and you were eligible for the My Community 30 year fixed zero down loan program, your payment would be $1,231 based on a 6.25% rate (6.34% APR) plus mortgage insurance of $98 which equals $1,329 per month*. If you did the 80-20 loan your payment would be $1,011 based on 6.50% rate (6.56% APR) and $160,000 1st mortgage 30 year fixed loan plus $307 payment based on 8.50% (8.61% APR) and $40,000 2nd mortgage 15/30 loan which equals $1,318*. At first glance, it seems the 80-20 might be a better choice but remember you can usually get rid of pmi with a new appraisal without refinancing after a minimum of 2 years if you have 20% equity or value in home, then your payment will be $1,231 per month which is lower than $1,318 for the 80-20 loan program. If you plan on staying in the home 2 years or more, you will save about $87 per month or $1,044 per year. I would rather buy myself a new set of golf clubs or treat my wife Natasha and daughter Alana to a nice dinner every month than fork it over to the mortgage company.....wouldn't you?

*Payment does not include home insurance, taxes, and association dues (if applicable).