Will Private Mortgage Insurance (PMI) Soon Be Tax Deductible and Better Than A Piggy-Back Mortgage?

A post on Mortgage New Daily entitled "PMI Deduction Buried In The Closing Acts Of Congress" reports that Congress may have passed a bill ammending Section 6050H of the Internal Revenue Code. If this is so and the bill is signed by the President, PMI will be treated as interest and will become tax deductible.

Many consumers have avoided PMI by obtaining a piggy-back mortgage or "2nd trust" for the remaining financing amount over 80% LTV. The interest on the piggy-back mortgage is tax deductible and one of the reasons why the option is so popular.

In speaking with a lender today, if the bill becomes law, it was explained to me that,

• financing less than $400K and going with an 80%+ LTV loan and PMI may be the best option for you.
• financing more than $400K and getting a piggy-back mortgage without PMI may be the best option for you.

Though it hasn’t officially been passed, there’s plenty of discussion going on within the industry already. And we’re sure to see plenty of debate between lenders and mortgage insurance companies on which is better.

We’ll have to see what happens next month when it’s put before the President to sign.

Check with an experienced and reputable lender and tax professional for clarification and to see which loan program is best suited for you.

Are You In Over Your Head?

Interest-only adjustable-rate mortgages have driven much of the buying activity over the last several years. Combined with the declining market, you may find that you owe more than your property is worth. Approximately 9 million adjustable-rate mortgages (ARMs) will readjust next year and many owners will be caught in the squeeze of having higher payments and no way to pay for them.

In 2001, only 2 percent of the ARMs were interest-only, while today’s figure is more than 35 percent. If your property value has decreased and you haven’t paid any principal, you may be upside down by thousands of dollars. If your ARM adjusts, you can’t afford your payments and you’re upside down, you may be closer to facing foreclosure than you may think.

Over 25% of all loans in America in the 4th quarter of 2005 were payment-option negative ammortization ARMs. This loan program currently has the highest rate of default and some (honest) lenders will steer consumers away from it even though the company they work with offers it.

It’s not just about what your monthly payment will be next month or 6 months from now. When assessing your financing options, make sure that you work with a reputable and experienced lender who is looking out for your best interests so that you don’t get in over your head.

Are You a Party To Mortgage Fraud?

Slow markets frustate sellers and agents and increase temptation to turn a blind eye to fraud. With the slowdown of the real estate market, mortgage fraud has become even more apparent as loans are analyzed on the secondary market. According to the Federal Bureau of Investigation and HUD, there were 21,994 mortgage fraud violations in FY 2005. The number for FY 2006 is expected to be much higher.

Mortgage fraud can be a number of things from something as little as $500 back from your agent/broker or sellers outside of settlement to builders, lenders and title companies engaging in illegal activities as reported on by Rachel Dollar and the Mortgage Fraud Blog. But as it relates to sellers, purchasers and agents/brokers, the law is very clear.

If the seller’s concession is shown on the HUD-1 Settlement Statement, there’s no fraud. If it’s not shown on the HUD-1, it’s mortgage fraud. But even if the seller concession is shown on the HUD-1 settlement statement, the description has to be accurate in order for the concession not to be mortgage fraud.

If you run across a seller or agent/broker who offers to give you money outside of settlement, be wary.

This article provided as general information. For advice in a specific case, consult your legal counsel.