Suddenly, Private Mortgage Insurance is back in vogue. If only by default.
The story background is well-documented in this Bankrate.com article from 2002. The article is five years old, but it still raises some salient points.
What the article doesn't highlight is that second mortgages such as home equity loans are typically sold to Wall Street, bundled in with sub-prime and "near-prime" loans.
Today, as the number of buyers for these higher-risk loan pools shrinks, some mortgage lenders have stopped offering second mortgages in order to reduce their overall lending risk.
PMI payments tend to be higher than their piggyback counterparts, but The Tax Relief and Health Care Act of 2006 narrows that gap using tax deductibility. The act grants itemized deductions for some private mortgage insurance (PMI) and government mortgage insurance (MIP) expense premiums paid in 2007.
For all loans originated in the 2007 calendar year, mortgage insurance is tax-deductible provided that two tests are met:
- The homeowner's household income is $100,000 or less in 2007
- The home loan is for a primary or secondary residence
For households earning more than $100,000, the deduction is phased out to the tune of 10% per $1,000 of additional income until it reaches 0% at $110,000
So, if a single person earns $90,000 in 2007 and buys a home using MI, the MI expenses are tax-deductible in 2007. However, there's a catch! Because the tax code is due to expire December 31, 2007, there is no guarantee that the MI will be tax-deductible in 2008.
As always, talk with your tax professional about how tax deductions work and whether you qualify for a PMI deduction.
As the number of mortgage products continues to shrink, PMI will continue to grow in popularity. The graphic/poll above will shift, too.
(Image courtesy: LendingTree.com)
Post a comment
Temporarily disabled — coming soon!
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
Powered by the ActiveRain Real Estate Network
© 2008 ActiveRain Corp. All Rights Reserved
Interesting point. Also, very timely. I'm sure we'll the decline of piggyback or 80/20 loans.
From a risk standpoint, i never understood why a bank would 2nd mortgages in an 80/20 or 80/15 fashion..
Naturally the First Mortgage will be the first to be foreclosed on if anything happens and the second will then be cash down the drain for the Bank. PMI has always made sense to me from the Lender's postion, it highly reduces or eliminates a loss for the lender who lends more than 80%.
On the flip side as a realtor, 80/20 and 80/15 have been a good product for the client, being that the payment was usually cheaper than a 95% or 100% loan with PMI.
Great info, and very true. Most lenders have stopped offering 2nds, and the majority of purchasers don't have 20% to put down, so the only other alternative is PMI or lender paid MI.
What great post!! This is very educational for consumers because I do get questions often from buyers about PMI... starting with what is it! Good job!
This is terrific! It's funny how PMI crept back into the picture...ya know! Love the cartoon!!
Ilyce,
It's so true. It's funny how PMI nearly vanished from the lending picture during the subprime glory days a few years back. The innovative piggyback product made it unnecessary. And now that piggybacks are largely removed from the program list, roaring back comes PMI.
It's a great alternative for the 80/20 mortgage which just about vanished. Personally I think it is a much smarter move than the 80/20.
Thanks for all of your comments so far. I appreciate your taking the time to reaad my blog post. Watch for an upcoming post on LPMI.
At this time lending institutions are not willing to take the risk, when there is not equity in the home.
Thanks for adding to the discussion, Derrick.