Consumer Advice, Mortgage Business

What is Mortgage Insurance and Why Would a Homeowner Have to Pay the Cost?

What is mortgage insurance?

Mortgage insurance is offered by either the government or private insurance companies to enable lenders to offer smaller downpayments on loans. Before mortgage insurance existed, many had to pay a minimum of 20% down to purchase a home which made homeownership unaffordable for many Americans. Mortgage insurance covers lenders for losses up to a certain amount if a borrower defaults on their mortgage.

There are two types of mortgage insurance available: Continue reading

Consumer Advice, Realtor Advice

Tax Deduction on MI Premium Payments Extended Through 2016

tax breaksAnd there’s more good news—the National Association of Home Builders estimates that deducting Mortgage Insurance (MI) premiums will save homeowners more than $1.3 billion a year.

During 2016, home buyers who use mortgage insurance for flexibility and lower down payments will also gain additional purchasing power through the extension of tax deductibility of MI premiums! Other benefits include:

  • A lower cost of home ownership (including refinancing).
  • Clear tax deductibility rules for borrowers planning to buy a house during 2016.
  • Current eligible homeowners may deduct MI premiums paid during 2015 on their upcoming tax return.

MI Premium Tax Deductibility

Mortgage insurance premiums may be tax deductible for those who bought or refinanced a home on or after January 1, 2007. The MI tax deduction delivers the biggest benefit to borrowers who itemize their federal tax returns. Eligibility requirements include:

  • Homeowners with an Adjusted Gross Income (AGI) below $100,000 per year (or $50,000 for those married filing singly) may deduct 100% of their annual mortgage insurance premiums.
  • Households with incomes over $100,000 and up to $109,000 are eligible for a reduced deduction.
  • The property must be a principal residence of the taxpayer or another residence that is used for personal purposes by the taxpayer.
  • Investor loans are not eligible.

We do not provide tax advice. Please consult your financial advisor for more information.

if you would like more information, please visit this Deduct Your MI Premium which links to IRS Publication 936

Consumer Advice, Mortgage Business

Mortgage Insurance – When Can It Be Cancelled?

If you have a conventional mortgage, and put less than 20% down when you purchased your home (or less than 20% equity when you refinanced your home) your monthly payment includes “mortgage insurance”.

 

Depending on your interest rate, for a 30-year term mortgage and if you put 5% down payment, it will take approximately 11 years to reach 78% loan to value; with 10% down, it will take about 9 years, and with 15% down, 6 years.

 

If you have an FHA mortgage, mortgage insurance is automatically included in your monthly payment. 

 

Both types of loans have certain rules where mortgage insurance must be eliminated after a certain period of time—and under certain conditions. 

 

Dropping Conventional Mortgage Insurance Rules:

 

Automatically Deleted When:

  • Mortgage balance is reduced to 78% LTV
  • LTV based upon ORIGINAL VALUE
  • Based SOLEY on regular amortization (not prepayment of principal)
  • Mortgage payment must be current

 You Request Mortgage Insurance be Deleted

  •  Mortgage Balance is Reduced to 78% LTV
  •  Submit cancellation request in writing
  • Good payment history
  • Current on mortgage payments
  •  Appraisal or Certification that property value has not decreased BELOW the original value
  • No 2nd liens or subordinated loans on property

 

Dropping FHA Mortgage Insurance Premium Rules:

 

If your loan closed PRIOR to January 1, 2001, you are NOT eligible for termination of MIP (monthly insurance premium) if closed on January 1, 2001 and after, MIP will be automatically terminated under the following conditions. 

 

More than 15-year term

 

  • Must pay for 5 years AND
  • 78% LTV based on original LTV

 

15-Year Term or less

  • If original loan amount is 90.01% or more, of the original appraisal value, MIP will be terminated at 78%
  • 5-year minimum payment waived
  • If original loan amount is 90% or less, of the original appraisal value, NO monthly MIP was charged.

 

SPECIAL NOTE: 

 

  1. Loan-to-Value for purchases based on the lower of the sales price or appraisal value 
  2. Loan-to-Value for refinances based on appraisal value
  3. Loan-to-value figured on base loan amount WITHOUT the Upfront Mortgage Insurance for FHA loans.