• Split Premium Insurance—In this option, the borrower purchases a portion of the insurance by either paying out of pocket or financing, and then pays a smaller amount on the monthly premium. Some find this option attractive because it offers flexibility for the homebuyer and the lender.  Mortgage payments may even be lower because the premium can be paid by a third party or at closing.  Borrowers may also benefit from a split premium tax write-off.

• Standard annual premium—This option requires that a certain amount be paid at closing, usually the total cost of the first year of insurance.  Some borrowers like the standard annual premium because they get the insurance cost out of the way in the first year, and the renewal in the second year and beyond often leads to lower monthly payments.  Some companies offer tax benefits for choosing this plan as well.

More thoughts

Remember, mortgage insurance is designed to get buyers into homes faster by avoiding a large down payment.  Keep in mind the following when you’re choosing a certain type of mortgage insurance:

• The home loan amount
• Estimated monthly payments
• Local housing trends

With careful consideration of your personal circumstance, along with the benefits and disadvantages of each type, you can choose the mortgage insurance that is right for your home.

What types of Mortgage Insurance programs are out there?

Each homebuyer is unique, and purchasing mortgage insurance is no longer a cookie-cutter, one-size-fits all industry.  From buyers that are cash-strapped to those looking to trade up, there are several mortgage insurance programs to consider.

• The Finance Single Premium Option—With this option, you pay the insurance during the closing with one payment.  Simply put, you’re financing some of the mortgage insurance with the loan amount.  Therefore, the single premium mortgage insurance stays with the loan until it is paid in full, since it has become part of the loan.  Nonetheless, some homebuyers see this option as a plus because it gives tax benefits and could lead to lower monthly payments.  The premium is also refunded if you get no longer need the mortgage insurance or sell the house.

• Lender Paid Mortgage Insurance–In this option, (sometimes called the “no mortgage insurance” option), the lender pays the mortgage insurance premium for the borrower.  The lender then charges the borrower a slightly higher interest rate.  This option is not available on all loans, but has several advantages to those who qualify.  You do not have to pay a monthly premium, enjoy tax benefits, and have the potential to qualify for a bigger loan.

• Monthly Mortgage Insurance—Also called “MI” or “MMI,” this option allows the borrower to pay a fee every month, regardless of the down payment amount.  Borrowers will be locked into paying MI’s for at least five years.  However, the mortgage payments decrease by the premium amount once borrowers are in the position to cancel their MI’s.  Some insurance companies are now making MI’s 100% tax-deductible for homebuyers with adjusted gross incomes of as much as $100,000.

. . . to be continued.

Washington, DC - Many consumers will enter this year’s spring home buying season with a new tax deduction that can put extra money in their pockets when they file their taxes next year. The reason: a new federal tax deduction allows many qualified families to write-off premiums for private and government mortgage insurance on loans that close in 2007.

This is the first time that homeowners with low down payment loans will be able to deduct the cost of their mortgage insurance premiums, resulting in an average annual tax savings ranging between $300 and $350 for taxpayers taking the deduction.

Under the new law, passed by Congress and signed by President Bush late last year, private mortgage insurance (PrivateMI) premiums are fully tax deductible for borrowers who buy or refinance a home this year if their adjusted gross income is $100,000 or less. Families with incomes of more than $100,000 and up to $109,000 will be eligible for a reduced deduction.

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