I'm not sure which to go with. PMI or 2nd mortgage. But i hear PMI is now tax deductible?

Question

Is the tax deductible 100%?

Answer 1

Congress has approved the deductibility of mortgage insurance (PMI) for loans generated in calendar 2007. You will not get a 100% credit for this on your taxes, but will be able to deduct it IF you itemize deductions in 2007, as it the PMI were ordinary home mortgage interest. The value of the deduction is directly related to the tax bracket into which you will fall. If you are in the 20% bracket, you will save taxes equal to 20% of the total cost of your PMI.

I advise extreme caution in going this route, since Congress has approved this deduction ONLY for 2007, and it must be renewed for 2008. Failure to renew means that the deduction is only valid for one year.

Answer 2

Acer had a very good answer. Congress will likely extend this law, but there's never a guarantee.

It's also income-dependent. It's 100% deductible up to $100,000 in income. You lose 10% of the deductibility for each $1000 over that amount, so after $110,000 in income, it's not deductible at all.

My best guess is that the way the numbers are working out right now, the PMI payment is slightly larger, though not by a ton. If you could get the PMI removed in a few years (minimum of 2 years, generally), your payment would then be lower than the 2nd mortgage option. So think about how long you'll be in that home, or even in that loan.

Answer 3

Yes it is tax deduct able and can be removed when the Loan to Value is below 80%. Compare and contrast the 2 payments and see which one is cheaper. Interest on your mortgage is tax deduct able and so is PMI so go with the lower payment IMO..