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Private Mortgage Insurance is Tax Deductible

May 26, 2009 by Jim Bigelow · Leave a Comment

Congress has extended tax deductions for homeowners paying private mortgage insurance through 2010.
But to qualify for the deduction you must have bought or refinanced your home since Jan. 1, 2007.
Families with adjusted gross incomes of up to $100,000 can deduct 100% of their insurance premiums, much the same as they deduct property taxes. The deduction is then phased out up to an adjusted gross income of $110,000

Mortgage insurance guarantees lenders will be repaid if the borrowers default. It’s almost always required if you hold less than 20% of the equity in your home. Your equity is the difference between your home’s market value and what you owe on your mortgage (and home equity loan, if you have one). The annual premiums run about 0.5% to 0.75% of the outstanding balance, $500 to $750 a year for every $100,000 you owe.

9 Steps to Cancel PMI (Private Mortgage Insurance)

1. Are you qualified? Most people can cancel PMI once equity in their home reaches 20 percent. Some types of loans, such as government insured FHA and VA loans, require PMI for the life of the loan. If in doubt, call your loan servicer to find out your options.
2. Do you have enough equity?
3. Has your home risen in value? If home values in your area are rising quickly, your equity will reach 80 percent more quickly. Mortgage servicers are not required to consider your homes current value but may do so.
4. Have you made extra payments? The other way to add equity is to make extra payments. Have you made any additional payments and applied them to principal?
5. Do the math Estimated value minus mortgage balance = equity.
Equity divided by estimated value = percentage of equity.
If you come up with a figure of 0.20 (20 percent) or greater, and your estimate is accurate, there’s a good chance you can drop PMI and save.
6. Call your lender Talk to someone at your lender’s customer service department to inquire about procedures for PMI removal. The formal request will likely have to be in writing, but calling first might save you some false steps later.
7. Write your lender When you make your written request, ask your lender to provide, in writing, the minimum amount the property will have to be valued at to qualify to have the PMI dropped.
8. Get an appraisal Most lenders require a formal appraisal of property — at your expense — before they will approve a request to drop PMI. Ask your lender if it has any specific requirements for the appraisal or appraiser that must be met. The company, rather than you, might have to order the work, for example, even though you’ll have to pay the tab of approximately $200 to $350.
9. Final precautions Make sure your loan is up-to-date before making the formal written inquiry to your lender. The lender will consider your payment history when deciding whether to drop PMI. Also, if the property has been converted into rental use, higher percentages of equity are required

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