Mortgage Insurance Premiums and the new tax law

Mortgage insurance will be tax-deductible in 2007 based on a new tax law signed during the final moments in Congress last year. Based on what I have read (and I am sure that everything on the internet is true) this is the first time these premiums have been tax deductible. I have never been one to suggest buying a home where you need to pay these premiums but I am sure there are scenarios where this may make a lot more sense now. With the cost of 'piggyback loans' or home equity lines and loans rising with interest rates in the last 12 months, looking at PMI is something that is worthwhile.

From what I have read, there are a few things to consider and as always please contact a tax advisor for the best advice on your situation.

Those considerations are as follows:

• Applies on to mortgages that are closed in 2007. If you closed in 2006, look into a refinance in 2007 with PMI (if the numbers make sense)
• There are income restrictions.
• This is a 1-year deal. Congress will have to renew it to make it stick beyond 2007.
• If you take the standard deduction instead of itemizing, this law won't impact you. Using simple math, you need to have a mortgage of approximately $130K to pay enough interest for the deduction to make sense.

I pulled some comments from various sources and according to an analysis by Bankrate, a homeowner with a $180K mortgage woudl save about $351 in taxes because of the new law if they had PMI. It assumes that the borrower has good credit and is the in 25% tax bracket.

Cheers.