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.
Since the new deduction is effective for the 2007 tax year, tax day in April 2008 could bring a bigger refund to qualified borrowers who buy or refinance homes this year with tax-deductible private mortgage insurance.
A broad coalition of tax, consumer, civil rights and civic groups strongly supported the mortgage insurance deduction.
"Making mortgage insurance tax deductible will amount to real savings for people who need it the most — families who've worked hard to get into their first homes," said Pete Sepp of the National Taxpayers Union. "Our tax code has long recognized the importance of allowing costs associated with home financing to be tax deductible, and mortgage insurance premiums should be no exception. Congress should uphold this principle by extending the federal tax deduction for mortgage insurance."
"Tax deductible mortgage insurance results in hundreds of dollars in savings for low to middle-income families. This important step towards homeownership was long overdue, and it is time for families to take advantage of the new deduction," said Bruce Hahn, president of the American Homeowners Grassroots Alliance (AHGA). "Making the deduction permanent would help lower income and first time home buyers, promote stability in the housing market, maintain home values and limit the impact of the current mortgage turmoil."
"Like many Americans, Latinos rely on homeownership to build wealth and are entering the housing market to get a piece of their American Dream," said Brent Wilkes, Executive Director of the League of United Latin American Citizens (LULAC). "This is a well-deserved tax deduction designed to help those who need it most — families who are buying a home without a big down payment."
"Homeownership fosters strong communities," said Melanie Campbell, Executive Director/CEO of the National Coalition on Black Civic Participation. "This new tax deduction can help low and moderate income families move one step closer to realizing their dream of owning a home."
This new law comes at a time when real estate market conditions are changing and increasing warnings of exotic loan risks are being voiced by government regulators.
Mortgage insurance plays a crucial role in maintaining the stability and health of the mortgage finance system. With rising interest rates and slower appreciation of home prices, many people who used exotic loan structures are being surprised with higher monthly payments.
"A loan with private mortgage insurance is a smart choice for many home buyers in today’s market, especially low- and moderate-income families," said Steve Smith, Chief Executive Officer of The PMI Group, Inc. and President of Mortgage Insurance Companies of America (MICA). "PrivateMI has always been an easy and predictable way for buyers to finance their home purchase, and it can be canceled when it’s no longer needed. Now, this new tax deduction makes it an even better choice."
Compared to other financing options, a mortgage loan with PrivateMI is often more affordable. Its fixed, predictable and cancelable premiums provide consumers with peace of mind — and now a tax deduction.
Private mortgage insurance premium prices vary based on the size of the down payment, type of mortgage and amount of insurance coverage. The cost of PrivateMI for a median-priced home — the projected national median price in 2007 for a single family home is $224,500 — ranges from $50 to $100 per month.
"This new tax deduction will make loans with private mortgage insurance even more attractive for home buyers who are on the cusp of homeownership," said Suzanne Hutchinson, MICA Executive Vice President. "The wide-ranging group of organizations that support this important tax break will certainly be working to extend the deduction beyond 2007."