PMI isn't a bad thing — it allows you to make a lower down payment and still qualify for a mortgage loan. In fact without PMI, many of us would not be able to purchase our first home.

NEW LAW MAKES MORTGAGE INSURANCE UP TO 25% LESS EXPENSIVE FOR YOUR BORROWERS

Thanks to a new law passed by Congress, mortgage insurance premiums will be tax deductible in 2007 for many home buyers*, providing you with a better way to buy homes.

That means you can enjoy PrivateMI’s predictable payments AND deduct the premiums from your income taxes, just like a second mortgage. And unlike a second mortgage, PrivateMI can be canceled once the home buyer builds enough equity.

Homebuyer benefits:

· 100% of borrower paid premiums are deductible for families making $100,000 or less who itemize their taxes

· Premium stays the same each month, no matter how much interest rates rise

· Easy to cancel once the home owner builds enough equity

· Only one monthly payment vs the piggy back loan

* This bill carries the provision for tax payers who purchase homes in 2007 and have incomes at or below $100,000 to deduct 100% of the mortgage insurance premium from their itemized taxes. The premium deduction is reduced by 10% for each $1,000 by which the tax payer’s adjusted gross income exceeds $100,000. Home buyers should consult their tax advisors for complete information.

Rethink piggyback or PMI equation
The PMI deduction is allowed only for mortgages that close between Jan. 1 and Dec. 31, 2007, and is effective only for the 2007 tax year, unless the federal government renews the law for subsequent years.

This limited duration complicates the question of whether a single mortgage with PMI may be more preferable than two mortgages in a "piggyback" structure.

If the PMI deduction isn't extended, you may still benefit from the two-loan option, or if you want to bank on the odds that the deduction will be extended, you may want to factor that expectation into your decision.

Either way, individual circumstances such as how long you plan to keep your mortgage and own your home, your ability to qualify for two loans, the purpose and type of your second loan, and your personal tolerance for risk, among other factors, may be more important than the tax benefit of the PMI deduction. Be sure to weigh all of the relevant factors before you make your decision.

How is PMI calculated?

Your PMI premium is fixed based on plan type (loan-to-value ratio, loan type, loan term, etc.) and is not related to your particular credit history or other individual characteristics. PMI typically amounts to about one-half of one percent of your mortgage amount annually, according to the Mortgage Bankers Association, and the premium payment is usually rolled into your monthly mortgage payment. On a $200,000 mortgage, you may be paying $1,000 per year for PMI.