Home financing can be complicated enough, but the Federal Government has done its part to add to the complexity The Tax Relief and Health Care Act of 2006 provides for new tax code that has implications for Saint Louis MO homeowners.

The act specifically addressed itemized deductions for government mortgage insurance (MIP) as well as private mortgage insurance (PMI) premiums paid during 2007.

For all residential loans initiated during the 2007 calendar year, qualifying private and government mortgage insurance is tax-deductible for a borrower so long as two qualifications are met:

1-Household income for the borrower is $100,000 or less in 2007

2-The residential loan is secured against a primary or secondary residence

The deduction is phased out for households earning more than $100,000. The phase out is at a rate of 10% reduction per $1,000 of additional income. The deduction is completely phased out at $110,000. So, for a non-married single homeowner who earns $90,000 in 2007 and buys a home utilizing a loan program with Mortgage Insurance (MI), the MI expenses would be tax-deductible in 2007.

Ah, but like many things, there's a catch! The new tax code was enacted for a finite period of time and is due to expire December 31, 2007. Unfortunately, until the act is extended, there is no guarantee that MI will be tax-deductible in 2008.

For borrowers, without deductibility, mortgage insurance was a fairly expensive option when compared to second mortgages (i.e. HELOCs - home equity lines of credit). Post August 2007, with the market for second mortgages becoming smaller and more expensive, the relative cost is leveling.

We have seen numerous examples of Saint Louis MO borrowers for which mortgage insurance is a more cost-effective alternative to a second mortgage. Many Saint Louis home buyers select the wrong loan program as they are misinformed about mortgage insurance.

A full analysis via a mortgage planning session with a Certified Mortgage Planning Specialist should be conducted in order to determine which residential loan product is the most suitable. This is especially important given the "temporary" status of the mortgage insurance deductibility. The mortgage interest deduction applies to FHA, VA and conventional loans.