Private mortgage insurance, or PMI, is a type of insurance that insures the lender in case the buyer defaults on the loan. The lender, or bank, requires PMI when the buyer has a down payment less than 20% of the asking price of the home. Private mortgage insurance has good and bad points, and there are ways to avoid paying it without putting down the required 20%.
To avoid paying PMI, a lot of home buyers have been using piggyback loans. A Piggyback loan is where you can take 80% of the purchase price and put it on a traditional mortgage and take the remaining 10% and place it on a second mortgage.
Congress has recently passed a law that will let homeowners deduct their mortgage insurance on their 2007 taxes (filed in 2008). Depending on your tax situation, the deduction for PMI could be significant, possibly making getting mortgage insurance a better option than a piggyback loan. So, if you are home buying or refinancing in 2007, review all your options with your bank to see what will be the best savings for you.
No MI was big for conforming loans but now that MI is finally tax deductible is HUGE!!! This will change the entire landscape for the industry. Watch the MI companies surge in profits!