Mortgage Insurance Premium Tax Info

Mortgage insurance premiums are an itemized tax deduction allowable by the IRS from fiscal year 2007.  To qualify; the insurance policy must be for home acquisition debt on a first or a second home. These mortgage loans must be loans used to purchase, build, or substantially renovate homes.  However, it must be pointed out that mortgage insurance policies on cash-out refinances and home equity loans would not qualify for tax deduction.

Tax deductible mortgage insurance premiums are a temporary tax break. It"s effective only for mortgage insurance policies issued on or after January 1, 2007. The deduction is scheduled to expire on December 31, 2010.

To compute the amount of tax deductible; just refer to the statement of premium payments paid during a fiscal year by lenders for the purpose of tax deductions.  For prepaid insurance, under a ruling from the IRS, premiums can be allocated on a prorate basis over the term of the loan or 84 months, whichever period is shorter. Use these statements as the basis when applying for tax deductions.

There are several different types of mortgage insurance available. Peruse the various plans and look for products that best suit each individual’s requirements. Be sure to inquire from lenders how these plans might work from an investment viewpoint especially on premium quantum and coverage.

There are many plans on offer. First are the monthly plans. For this type of policy, you have to remit payment every month without fail . Secondly, there is the single premium type; generally   annexed to a loan with refundable option for unused premiums. The third type of policy is the split premium type, an affordable and flexible upfront premium to help provide significantly lower monthly payments compared to traditional mortgage insurance. Finally, there is the level annual premium mortgage insurance which features an annual premium with one level rate for the first year premium and another for renewal premiums

For those who acquired  FHA Mortgage Insurance loans after September 1, 1983 or have paid an up-front mortgage insurance premium at closing and did not default on mortgage payments, they are eligible for a refund of a portion of the insurance premium from the Housing and Urban Development(HUD). As such, mortgage insurance holder need to check with their mortgage company to determine if they have paid for an up-front premium. For those who bought their insurance from  mutual mortgage funds, they are entitled to a share of excess earning, if any.