Households with annual income of $100,000 or less can get a tax break on their mortgage insurance when purchasing a home in 2007 using less than the traditional 20 percent down payment.

That’s because a new tax deduction effective Jan. 1 will allow them to write off the full cost of their private or government mortgage insurance on their federal tax return.

With rising interest rates and slowing home-price appreciation, insured loans are often the best deal for borrowers, according to the Mortgage Insurance Companies of America, a trade association representing the private mortgage insurance industry.

Mortgage insurance helps loan originators and investors make funds available to home buyers for low-down-payment mortgages by protecting lenders from a portion of the financial risk of default.

“Making the cost of mortgage insurance tax deductible helps those who need it most: low- and moderate-income Americans, primarily first-time home buyers, who are financially responsible but simply don’t have the means to amass a 20 percent down payment,” said MICA president Steve Smith in a statement.

On average, the new deduction is expected to save those eligible to claim it an average of $300 to $350 a year, said MICA spokesman Jeff Lubar.

The deduction applies to private and government mortgage insurance programs, such as VA and FHA-backed loans, Lubar said. Legislation creating the deduction was supported by consumer, business, taxpayer and civil rights groups, including the National Urban League, the National Taxpayers Union, the American Homeowners Grassroots Alliance, and the Cuban American National Council.

Manny Mirabal, president of the National Puerto Rican Coalition, said about one in three families benefiting from the deduction will be minorities.

Mirabel said that with the rate of Hispanic home ownership lagging 20 percent below the national average of 68 percent, “this legislation (will) enable more hardworking Hispanic families and consumers to become homeowners.”

The deduction can only be claimed for mortgage insurance contracts issued between Jan. 1 and Dec. 31 2007. Additional legislation would be required to allow those who purchase mortgage insurance after 2007 to claim the deduction.


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