If you purchased your home after July 29, 1999, your lender must automatically terminate your PMI when your equity reaches 22% of the original property value at the time you took out the loan. However, you don’t have to wait for the lender. Once your equity reaches 20%, you can request that your PMI be cancelled by writing your lender and requesting that it be removed. Paying PMI for even one month longer than necessary is throwing away money. On a $100,000 loan with a $5,000
down payment, PMI might cost you between $40-$45 a month. That’s $480 a year that could go back in your pocket.
Your Private Mortgage Insurance Might be Tax Deductible
PMI may be tax deductible for certain borrowers for the 2007 tax year only. In order for PMI to be deductible, a qualifying loan (purchase or refinance loan involving a primary or second home only. Investment property not applicable) must be originated and closed after Jan 1, 2007 and before December 31, 2007 when the deduction ends. Congress may, but is not obligated to, extend the deduction to future years.
The PMI deduction is available only to borrowers who file an itemized tax return, and is limited by a borrower’s adjusted gross income (AGI). Borrowers with an AGI greater than $110,000 in 2007 are not eligible. Borrowers with an AGI less than $100,000 receive a full deduction for PMI premiums paid. If a borrower’s AGI is over $100,000, the deduction is reduced by 10% for every $1,000 over $100,000. Or put another way, if a borrower’s AGI is $101,000, they can deduct 90% of the PMI premiums paid. If AGI is $105,000, only 50% of the premiums are deductible. Additional restrictions apply so consult with your tax professional or financial advisor to see if PMI will be deductible for you.
Ask Your Lender About the Benefits of Refinancing
Another way to potentially save money on your home loan is to refinance your loan with a new loan. It’s an especially smart strategy if you have a non-prime loan and can demonstrate you consistently pay your home loan on time. If that’s the case, consider asking your lender about refinancing into better terms, and a better interest rate. Your lender has most of your information already, so refinancing may be easier with your current lender than with another third-party lender. Your lender wants to keep your business and doesn’t want you to refinance with a competitor, so they may be able to quickly refinance your loan into a better rate, potentially saving you thousands of dollars over the life of your home loan.
Check the amortization table on your current loan to see what refinancing could do for you. If you have been paying on your loan for years, don’t forget the effect of paying more principal each month as the years progress. Remember, refinancing may start another 30-year term of loan payments, which could result in you paying thousands of dollars more in interest charges over the life of the loan. Ask your lender for details on how a refinance could financially benefit you beyond just reducing your monthly payment.
Shop Around for the Best Deal Depending on the terms of your loan and your current credit history, you may or may not be able to refinance into a better loan. Don’t hesitate to consult with several lenders to see if one can offer you a better deal.