MI Deduction Bill Passes

Congress passed the legislation which will allow borrowers to write-off the cost of government and private mortgage insurance premiums on their federal income tax returns, the Mortgage Insurance Companies of America announced Monday.

The legislation, reportedly effective for the 2007 tax year, passed the U.S. House of Representatives on Friday, was approved by the Senate early Saturday and is expected to be signed by president in the next few days, MICA spokesman Jeff Lubar told MortgageDaily.com.

Through the legislation, borrowers of purchase-money loans originated in 2007 who have annual household incomes of $100,000 or less will reportedly be able to deduct the full cost of their mortgage insurance premiums on their tax returns.

This tax relief will aid nearly 1 million borrowers looking to buy a home with an affordable mortgage in the coming year, private mortgage insurer Genworth Financial Inc. reported.

“Making the cost of mortgage insurance tax deductible helps … primarily first-time home buyers,” said Steve Smith, MICA president and PMI Group Inc. chief executive, in a written statement.

It is estimated that 33 percent of the families benefiting from the new deduction will be minority homeowners, the National Puerto Rican Coalition said in a written statement.

The challenge of saving for the traditional downpayment is even bigger in high-cost areas such as California, where the median home price is almost $549,000.

The lack of tax deductibility had made second mortgages a good alternative to mortgage insurance. While the rate on the second might have been a little higher than on the accompanying first mortgage, the interest was tax deductible — prompting many borrowers to utilize an 80 percent loan-to-value first mortgage, which required no mortgage insurance, and a 10 percent LTV second.

Related:

Mortgage Insurance Deduction Cut From Final Tax-Cut Package
Congress was poised last week to give homeowners a break on a common mortgage fee. However, the final version of tax-cut legislation didn’t include the measure, which would have eliminated income tax on mortgage insurance for many people.