A new 2007 tax deduction is going to expand the value of homeownership for many taxpayers!  I’m talkng about the brand new ability to deduct mortgage insurance premiums, somewhat like we now are able to deduct mortgage interest.  I say somewhat because the PMI (private mortgage insurance) is only fully deductible for an AGI up to $100k. As your AGI increases, your deductibility may decrease.  Actually the original legislation for this bill passed the U.S. Senate in 2004, but was no longer present in the final draft when the House of Congress approved the bill. 

Until now, the many homebuyers used an 80/20 strategy in shopping for mortgage loans in order to avoid paying PMI.  They were typically paying a higher interest rate on the second mortgage of 20% LTV (loan to value ratio), but at least the interest could be tax deductible. One benefit of the 80/20 plan is that for homeowners interested in paying off their mortgage early, they can start by accellerating the payments on the smaller, second loan, which is also usually carrying the higher intereste rate. 

There is another pretty common strategy for avoiding paying PMI.  It’s called ‘lender-paid MI (mortgage insurance)’.  The lender waives requirement for an added monthly PMI premuim in exchange for a slightly higher interest rate.  The upside: the monthly expense is about the same and it becomes (possibly) tax deductible (regardless of your AGI).  The downside: the expense lasts for the life of the loan, which is longer than PMI. 

By the way, in case you’re wondering just how much of a tax benefit your mortgage interest deduction is, check out Scott Burn’s Homeownership Tax Benefits Calculator, or contact your tax advisor!  In case you’re not sure how much equity you have in your home, consider your options. 

Zillow™ can be an entertaining research tool, but take care to consider how they get the information they use to render a ‘zestimate’.  If they are using local property tax records, realize that tax records are often inaccurate and always history.  How old is the history?  Who knows?  An appraiser typically won’t use any sales data that is older than 6 months.  It sometimes takes 6 months for online tax records to be updated!  If Zillow™ is within 10% of being on the mark 85% of the time, then they’re wrong 100% of the time, even with the best of intentions.  If you want to know your home’s value for sure, hire an appraiser.  The next best way is FREE and is to ask a REALTOR®