Utah Real Estate News Clips - Utah Real Estate

Bush signs bill that provides deduction for PMI
December 21, 2006

On Wednesday, President Bush signed into law a bill that provides a deduction for private mortgage insurance — perhaps making piggyback loans a less attractive option for borrowers with down payments less than 20 percent. Around noon EST, Bush signed into law the Tax Relief and Health Care Act of 2006, which has a buried provision that allows borrowers to deduct the cost of private mortgage insurance on qualified personal residences. According to Section 419 of the bill, the premiums paid or accrued for qualified mortgage insurance can be treated as interest for taxpayers who itemize.

However, the deduction does come with some stipulations: (1) The deduction does not apply to any mortgage insurance contracts issued before Jan. 1, 2007. (2) The PMI deduction will not extend beyond 2007 unless Congress renews it in another bill. (3) The deduction phases out for taxpayers whose adjusted gross income exceeds $100,000.

Lenders require private mortgage insurance on loans with a loan-to-value ratio greater than 80 percent. In recent years, many borrowers have preferred to piggyback loans, thus eliminating the PMI requirement. Now that PMI can be deducted like interest, buyers may find they prefer private mortgage insurance over a second, higher-cost loan.

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