Congress passed and the President signed into law recently the tax deductibility of mortgage insurance premiums.


This is huge! I know I make a big deal about what most of you would almost surely ignore. The King of Real Estate Minutiae and all…but this one really is a big deal.

So listen up, there are a few rules to get the most out of the new law, okay?

First, tax deductibility only applies to those who earn $100K per year or less. Now that rules out some, but not Middle American…that’s good.

Second, tax deductibility only applies to “acquisition debt”…the original purchase debt you incurred at the time you “acquired” the home. It doesn’t apply to refinancing the $50K of credit card debt you also “acquired”. So debt consolidators are out of luck. But that’s not too smart anyway.

Let’s look at a workable example…

You bought your $200K home 3 years ago with a FNMA Flex 100, 5/1 ARM loan, putting nothing down, your acquisition debt is $200K. Depending on your credit score that loan carries approximately a $245 per month mortgage insurance premium…a non-tax deductible expense and it will remain so if you don’t refinance.

You took the 5/1 adjustable rate option 3 years ago because you thought you might be moving soon and the rate was appealing. But now you realize you’re staying put and the rate increases over the past 36 months have you worried. Refinancing now into a 30 year fixed rate at currently below 6% taking advantage of a temporary pull back in rates seems like the right thing to do. (…and it is!).

Now here comes the Christmas present. You’ll have mortgage insurance of about $245 per month on the new refinance loan too. But this time you’ll get Uncle Sam’s help with the mortgage insurance premiums as long as you close after January 1, 2007 and before December 31, 2007.

So now you have two financial reasons to something that’s already in your best interest: fix in your rate and change your mortgage insurance into a tax break!

Boy, you just can’t beat that…

Of course, this law also pertains to new purchase mortgages as well, so it’s not just good for refinancing. The current law is set to expire at the end of 2007 and even though the smart money bets it will get extended, don’t dawdle. “Get while the getting is good.”

As mortgage rates will assuredly continue their upward track after the Holidays, I’m sure this was Congress’s and the Administration’s way to bolster a lagging housing market. Given the high contribution housing and other related industries make to our economy of late, passing this law is just collective butt covering.

It can also be explained by the fact that home builder, mortgage bank, and real estate brokerage PACs contribute millions to Federal elections…so; it smells like a little quid pro quo.

At least this time, you get to benefit as well.

UPDATE 1-16-2008: The tax deductible status of mortgage insurance through 2010 has been extended!

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