Mortgage Insurances is a Tax Deduction for 2007

Well, this is one way to help stimulate a little housing growth. The U.S Congress approved in December 2006, to provide new 2007 homeowners a deduction of their MIP (Mortgage Insurance Premium), FHA's PMI (Private Mortgage Insurance) and VA's funding fees against their tax liability.

The Mortgage Insurance is required by lenders when you put less than 20% down on a home with a housing loan. It helps insure the lenders in case of default. It further allows buyers more buying power by becoming homeowners sooner with a small down payment. Mortgage Insurance Premiums and Private Mortgage Insurance are added to the monthly payments. This only applies to mortgage contracts that were made for the primary, secondary, and vacation insured loans in 2007. This does include refinancing during this period as long as it is for these particular loans. However, investment loans are not included. The reason is because it needs to be a principle residence or a residence for personal use.

Mortgage insurance can be cancelled when a homeowner's equity increases beyond the 20% loan to value level. Let's say you put a 5% down payment on a home. You would have to wait for either the appreciation of your home or the principle to be paid down enough for your equity to equal 20%. Vacation and investment loans could be a little higher. The actual criteria does depend on your lender. Years ago, it used to be up to the owner to request a cancellation of the mortgage insurance. However, today, the lender is required by law to automatically stop the mortgage insurance when it reaches this level.

Deducting the mortgage insurances provides extra leverage for the owner by offsetting the tax liability. It is estimated that the actually dollar savings could range annually between $200-400 depending on ones tax bracket.

This is not just for first time buyers either. However, this new deduction does have its limitations: