Avoiding Mortgage Insurance

Mortgage Insurance (MI) applies to the first loan on your home should the loan amount exceed 80% of the purchase price or value in a refinance. Since MI is not tax deductible (see below) and has no advantage to you as a borrower, we eliminate this need by providing two loans instead of one. This is called a combination loan. The first loan is for 80% of the lesser of the purchase price or appraised value (or the appraised value in the case of a refinance) and the second loan is for the remaining balance. The second loan does have a higher interest rate than the first loan. The advantage to you as the borrower is that the interest from both loans is now tax deductible. Also if your desire to pay down your loan the second loan is for a smaller amount than the first and therefore easier to pay off. The total payment for the combination loan is usually lower than if you had MI. These loans are typically known as 80/20 (zero down payment), 80-15-5 (5% down payment) or 80-10-10 (10% down payment). Your down payment can be for any percentage or dollar amount.

In January 2007, President Bush signed a law which allows mortgage insurance to be tax deductible if your adjusted gross income is under $110,000.00. This does not apply to refinances. Please consult with your loan officer and tax adviser regarding this option.