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Mortgage Insurance is Now Tax Deductible
Katz Mortgage Team, of Fairway Independent Mortgage Corporation headquartered in Atlanta, Georgia, has announced that Congress has just passed long-awaited legislation that will make mortgage insurance payments tax deductible on new mortgage originations beginning January 1, 2007.
The provision nestled in the federal "Tax Relief and Health Care Act of 2006" would allow home buyers to deduct the cost of mortgage insurance premiums they pay in connection with a mortgage obtained in 2007.
The mortgage insurance tax break would mark a big change for homeowners. Currently, owners can deduct the interest they pay on their mortgage loans but not the cost of mortgage insurance premiums. Supporters of the legislation say the new law would help level the playing field for low- and moderate-income buyers, who are the most likely to need mortgage insurance.
Traditionally, mortgage lenders have required that home buyers pay for mortgage insurance if they make a down payment worth less than 20 percent of purchase price.
Mortgage insurance typically costs about half of 1 percent of the mortgage amount. On a $400,000 loan, for example, the annual cost would be about $2,000. The mortgage insurance protects the lender in case the borrower defaults on the loan.
In recent years, mortgage lenders have helped buyers avoid mortgage insurance premiums by arranging piggy-back loans. As a result, a borrower who can make a 5 percent down payment might take out a first mortgage for 80 percent of the purchase price, and a second mortgage for 15 percent - in effect substituting the second mortgage for much of the traditional down payment. One drawback is that higher interest rates are typically charged for second mortgages.
Under the new law, home buyers whose adjusted gross income is $100,000 or less could write off all the premium costs.
Home buyers with income between $100,000 and $110,000 would get to deduct a portion of the costs.
"This really helps the low-income buyer, the first time and emerging market buyers as they typically have less than the required 20% down payment needed to alleviate the cost of mortgage insurance", says Stephen Katz of Katz Mortgage Team. "With this bill, a huge step has been made toward making the dream of homeownership more attainable for those who need help the most".
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