From House To Home

With the holidays in full swing, wouldn’t it be terrific to stumble into a little extra cash? You might not have to look much further than your last mortgage statement. 

Many consumers who have lived in their home for a while and have been paying PMI—private mortgage insurance—could be eligible to save some money.

PMI is extra insurance that mortgage lenders require from most homebuyers to protect them in case a borrower defaults on his or her loan. PMI is normally required for those who put less than 20 percent down on a conventional loan.

The cost of PMI varies depending on the type and term of the loan, how much is financed, and the borrower’s credit history. For a median-priced home, it can typically run anywhere from $50 to $100+ per month in addition to the mortgage payment. Over the course of a year, that adds up.

The good news is that homeowners who do carry PMI may be able to get it cancelled altogether or might be able to write-off their premiums for loans closed this year.

The first step is to determine how much equity a homeowner has built up in his or her home. Has the principal been paid down considerably? Have other houses in the neighborhood appreciated rapidly in value? Have renovations or upgrades been made that have substantially increased the home’s value? If so, and borrowers can demonstrate that they have more than 20 percent equity, they can contact their lender or loan servicer directly and ask to have PMI removed.

The lender may require a home appraisal, which can typically run $300 to $400. But if it gets rid of a PMI premium that’s no longer needed, it’s well worth the expense. Once PMI is cancelled, if a borrower has paid PMI up front or annually, he or she can request a refund.

In addition, under the Homeowner’s Protection Act of 1998, PMI is automatically terminated if a borrower meets certain conditions, and the loan originated on or after July 29, 1999. First, a homeowner cannot be behind on any mortgage payments. Secondly, the loan must have amortized to at least 78 percent of the original value of the house. Third, the loan cannot be a government-sponsored VA (Veteran’s Administration), FHA (Federal Housing Administration) loan, or “piggyback” loan.

Lastly, changes in the federal tax code now allow many qualified families to deduct some or all of their PMI premium on their mortgage for the 2007 tax year, provided the loan closed in 2007.

Those with an adjusted gross income of $100,000 or less are able to deduct the full premium cost, while families earning up to $109,000 qualify for a reduced deduction. The annual tax savings when filed next April could range between $300 and $350. Since this tax legislation is set to expire December 31, 2007, be proactive about PMI, and don’t let the extra money slip away. (Source: www.privatemi.com)