Saving You Money For Life

In these days of creative home financing and sky high housing costs, one of the additions to the home-buying landscape is personal mortgage insurance (PMI). This coverage is paid by the homeowner on behalf of the lender – it’s an insurance policy that protects the lender should the borrower go into default and the home go into foreclosure.

The lending institutions of this country decided some time ago that anyone who could not make a 20 percent down payment on a home purchase – the traditional mortgage model for past decades – would be required to include PMI in their home financing package. This insurance isn’t cheap – it can be up to one percent of the loan amount, per year. For this reason, many people go through the hoop of obtaining a second, piggy back loan that allows them to plunk down the 20 percent down payment and keep the primary lender happy. Of course, then the new homeowner is paying on not one, but two loans.

The price of homes these days precludes most people from coming up with a twenty percent cash down payment. The use of secondary loans allowed the homeowner to take the tax deduction for the interest on both loans, allowing a little financial relief from the added burden of the insurance.

Just weeks ago at the behest of the insurance industry, Congress made PMI payments tax deductible as well. Now the insurance companies will not be losing business to dual loan home purchases and the lenders will continue to have their borrowers provide insurance for them.

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