New Law Makes Mortgage Insurance Deductible
President George W. Bush today signed into law new tax legislation allowing the deduction of mortgage insurance premiums on federal income tax returns. Under the new law, borrowers closing loans to purchase homes in 2007 who have an annual household income of $100,000 or less will be able to get a low-down-payment mortgage and deduct the full cost of their mortgage insurance premiums on their federal tax return. The legislation had been widely supported by consumer, business, tax payer, civil rights, civic and labor groups. Congress had originally voted to pass the little-publicized legislation in a late session this past weekend. Mortgage industry reaction to the new law has been largely positive, with insurance providers MGIC and Radian issuing statements today applauding what they each characterized as a 'win' for homebuyers. Each firm provides mortgage insurance to borrowers, and stand to gain business from a large number of borrowers that have recently been choosing alternatives to mortgage insurance. According to an analysis by Bankrate.com, a homeowner with a $180,000 mortgage would save about $351 in taxes a year because of the law, assuming that the borrower has good credit and is in the 25 percent tax bracket. Taking out a second mortgage or a home equity line of credit has long been a source of tax advantage for borrowers, and was a significant drain on the more traditional mortgage insurance business during the housing boom of the past few years.