For years, lenders have advised consumers that a down payment of less than twenty percent would require private mortgage insurance. In addition, consumers were advised that the mortgage insurance portion of the mortgage payment, although required, was not a tax-deductible item recognized by the Internal Revenue Service.
Today consumers, with the education provided by their accountants, financial advisors and mortgage lenders, have options to both maximize the tax deductibility of their mortgage payment, as well as insure the lenders equity in case of default.
By financing private mortgage insurance, the consumer can "roll" the cost of the premium into the principal balance of the new mortgage, whereby the tax deductible interest portion of the mortgage payment includes interest on this premium. Furthermore, by encompassing the premium into the principal balance of the mortgage, the borrower has a lower monthly payment.
For example, a client borrowing $250,000.00 with a 90 percent loan-to-value, the monthly savings excluding the tax deductibility factors would be over $100 per month, versus traditional financing with private mortgage insurance.
The CPA and/or financial advisor should be actively involved in deciding whether or not this program is prudent for his or her client. The advisor should consult with the client regarding recent revisions to the laws pertaining to private mortgage insurance, and the impact this financing option might have on the home purchase.
Prior to referring a client to a mortgage lender, the advisor should inform the borrower of available options. In the past, few borrowers were properly advised as to the kind of mortgage that would best maximize their financial objectives.
The financing of private mortgage insurance is not product specific and is an option offered on most popular mortgage offerings (i.e. fixed rate and adjustable rate mortgages) with Loan-to-Values up to 95%.
One of today’s popular financing vehicles, the Option Arm (i.e. MTA or COFI), allows the borrower to finance his mortgage insurance through a "lender paid" mortgage insurance program. This product provides the borrower with a variety of monthly payment options without the rigid constraints of conventional financing. Recommended by CPAs and financial advisors, the Option Arm allows the borrower to make minimum monthly payments, thereby allowing borrowers the opportunity to utilize the additional cash flow for either investment or the repayment of other obligations.
This article was provided by Eric Goldstein and Mark Zamkoff of Worldwide Financial Resources, headquartered in East Brunswick, New Jersey. To learn more about Worldwide Financial Resources call (800) 320-3765, Ext 247 or Ext 226 or visit www.mortgagecommitment.com on the web.
The National Network of Accountants is a leader in the training and development of accountants in the field of personal financial planning. For additional information about the National Network of Accountants go to National Network of Accountants, or call (800) 234-PLAN.