Low Income Homeowners Get a Tax Break on Their Mortgage

By Gabriel Traverso
Mortgage Credit Problems Columnist

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A new law has been passed by Congress and signed by President Bush providing a tax deduction for private mortgage insurance. This results in real savings for hard-working homeowners like you.

The Reason for Mortgage Insurance

Private mortgage insurance, or PMI, is required for homeowners who have less than 80% equity in their homes or make less than a 20% down payment on a new home. It's a requirement designed to protect mortgage lenders and the financial backers affected by defaulting loans and foreclosures. If you look at the numbers--118,214 borrowers used PMI in February of this year and 108,980 used it in January--it's obvious that many borrowers are in the same boat: shelling out money to protect the bankers. Well, now you get a break.

Getting Some Money Back

For many with bad credit a mortgage refinance is a potentially troubling affair. You have to shop around for the best deal, pay closing costs, and you end up paying a higher rate on the refinance because of your bad credit. This new tax break, while only in effect for 2007, offers you a break--finally. "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.

Perhaps a Permanent Change

If you have to pay private mortgage insurance on your home loan it's only temporary: it can be cancelled once you build up enough equity in your home. Still, this tax break is designed to help low-income families, those with combined incomes of $100,000 annually or less, and it's aimed where people will feel it the most: their wallets. If you've been considering a home loan refinance this year take this as one more sign that it's the right move. If you qualify for the deduction it could mean a tax savings next year of hundreds of dollars for your refinance this year.

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