Improving Your Options

Just before the Christmas holiday – in fact, exactly a week before, on December 18, 2015 – the President signed legislation that renews the tax deductibility of mortgage insurance (MI) premiums for qualified borrowers through 2016.

This new legislation is effective for purchase and refinance transactions closed after December 31, 2014. Mortgage Insurance premiums paid or accrued after December 31, 2014, and through December 31, 2016, may qualify for tax deductibility on borrowers’ subsequent federal tax returns as follows:

• Borrowers with adjusted gross incomes below $100,000 may deduct 100% of their MI premiums
• For borrowers with adjusted gross incomes from $100,000.01 to $110,000, deductions are phased out at 10% increments for each additional $1,000 of adjusted gross household income

Quite often, of course, many buyers immediately stop listening when they hear the term “mortgage insurance” and start thinking about other things like needing to schedule an appointment with the vet to get their cat dewormed or why bread always lands butter side down when dropped. They lose their focus, and that could lose the sale. Get them to focus and remind them that those loan options that have mortgage insurance usually have lower monthly payments, much lower down payment requirements (3%), and cancellable premiums. As it dawns on them that you’re more than a real estate agent – you’re an expert – deliver this coup de grâce (I believe that’s French for “do you want fries with that”) about the tax deductibility, and they just might name their first child after you (or, at least, their next cat – whom I hope has been dewormed).

Just a couple of reminders to keep in your back pocket:

• Under the Homeowners Protection Act of 1998, lenders must terminate MI once the loan is scheduled to reach 78% of the original home value – the insurance policy should be automatically cancelled at that time
• The CFPB, this month, issued a compliance bulletin reminding lenders of this automatic cancellation requirement – even if the home’s value has dipped below the sales price

• The cancellation rules DO NOT apply to the low-down-payment FHA loans – borrowers are required to pay insurance as long as they have an FHA loan (if the loan was acquired after June, 2013)