trump rates

What Is Trumps Position on Mortgage Rates, Lending Rules and Banking Regulations?

After the surprise election of President Trump, it was widely expected that the Trump Effect would drive mortgage rates higher. This has largely turned out to be true. In the past year and a half, mortgage rates have risen markedly. They went from the mid 3% range in early 2017 to almost 4.8% as of June 2108. This is not always the best news for people looking to get a mortgage. But it is not always a bad thing either.

First of all, rising interest rates generally signal a stronger economy as there is more economic activity. Home prices have been growing in the past year with approximately 7% growth per year. This is helping rates to go higher too. The higher mortgage rates have been good for people with investment accounts because stocks have risen in the same period.

Why Are Rates Higher Under President Trump?

Basic economics tells us that a stronger economy with higher wages and low unemployment leads to higher mortgage rates to lower inflation, which is a danger as an economy expands too quickly.

The funny thing was, when Trump won, the stock market futures actually dropped because there was uncertainty about what the Trump presidency would mean for the American and world economy. The uncertainty meant there was a stock sell off the next day, and that would translate into a lot of people buying bonds. Investors buy bonds when there think there is fear in the market. Bonds pay low rates and are dull but are reliable. If this had kept up, we would have started to see even lower mortgage rates than when had at the start of 2017. But that is not really what happened.

But now that President Trump has been in office for a year and a half we can see that he is definitely trying to encourage a stronger US economy with low unemployment, high growth, less regulation and lower taxes. This tends to encourage the real estate market and people want to buy homes. This drives demand for homes, prices rise and so do interest rates. If you wanted to get a 30-year mortgage under 3%, you have missed the boat because rates now are inching towards 5%.

Trump and Tax Cuts

Another major thing to keep in mind as you are looking at buying a home and interest rates is the Trump tax cuts that came into effect this year. It definitely has an effect on home owners and those buying a home. First it has doubled the standard deduction for single filers from $6350 to $12,000. The deduction for Married and Joint Filers went up from $12,700 to $24,000. It is believed that 94% of taxpayers will opt for the standard deduction. This means that owning a home and itemizing your deductions may not have the same appeal that it once did.

It is possible that with fewer people taking the mortgage interest deduction, it could lead to a reduction in home demand and prices. But this has not happened at this time as home prices have continued to grow higher this year.

Also important for home owners is the law cut the deduction for mortgage interest to the first $750,000 of the mortgage loan. Interest on home interest equity lines of credit are no longer able to be deducted. But current holders of these mortgages are not affected.

Taxpayers can take deductions up to $10,000 in local and state taxes. But they have to choose between property taxes and sales or income taxes. This does have a potential negative effect on states such as California and New York.

Generally, having President Trump in office seems to be largely a positive for the overall and housing economies. Unemployment is low, wages are rising, interest rates are rising, which indicates generally stronger housing demand and economic activity. Even the increasing gas prices can be seen by some as a sign of stronger economic activity.

As of today, the higher interest rates around 4.6% have not really slowed home buying. Perhaps people are continuing to buy as they want to avoid that 5% mortgage that some experts say is coming in 2019.



How Bahamian Private Mortgage Insurance Companies Are Getting Rich on the Back of American Homeowners.

Americans who want to buy a home with less than a 20% down payment usually must have private mortgage insurance or PMI. Private mortgage insurance is issued from independent insurance companies, with many of them currently located in the Bahamas. The insurance protects the lender if you no longer make payments on your home loan. PMI usually is set up by the lender and is provided by various private mortgage insurance companies.

There is some controversy about what PMI companies are charging customers these days. Although the economy is fairly strong and default rates are low, many Bahamian private mortgage insurance companies are charging a lot, and some say are getting rich off of American homeowners. When you consider the fact that the monthly PMI cost on a $200,000 house can be $150 or more, it is easy to see why some in the industry say these Bahamian insurance companies are charging too much.

If you are putting less than 20% down on your home, you will need to know more about mortgage insurance. Below is more information.

Different Types of PMI

There are two major types of mortgage insurance. The first is the type that is purchased by the US government and is made for FHA loans, also called MIP. The other is PMI that is used on conventional loans that are purchased from the private sector, often these insurance companies in the Bahamas.

What Mortgage Insurance Costs?

On conventional PMI, what you pay will depend upon how much you put down and what your credit score is. It also can depend upon the insurer. But in many cases, the premium for PMI can range from $30 to $70 per month for every $100k you borrow. Thus, you can be paying $150 or $200 per month for PMI, if you buy a typical home of $250,000 or $300,000. Again, this all seems a bit unfair to some people when you consider default rates are very low. But mortgage lenders need to have assurance they will be paid back, so mortgage insurance is a necessary evil for people who put down less than 20%.

Who Is Required to Have It?

When the amount you put down is less than 20%, you must have PMI on a conventional mortgage. These payments are usually paid until you have sufficient equity in the home to have at least 20% equity. This amount is reached both through paying your mortgage on time and any appreciation that occurs. Home values are on the rise to the tune of 7% or so from last year. So, you may find that you have more equity in your home than you think. Some homeowners might be able to cancel their PMI sooner than later.

When Do You Pay?

Most PMI companies have you pay your mortgage insurance along with your monthly mortgage payment. Lenders also have policies in some cases that allow you to pay PMI in a lump sum when you close.

How Long You Need It?

You need to have PMI on a conventional loan until you have enough equity in the home to equal 20% of the home’s value and have an LTV of 80%. However, if you have an FHA loan, you may be required to have mortgage insurance for the life of the loan if you put down less than 10%. This really seems like those Bahamian insurance companies are getting rich in this case!

How Do You Avoid PMI?

For conventional loans, you can avoid paying PMI by putting down at least 20% on your home. There also are some mortgages that will pay your mortgage insurance for you, but this will come with a higher interest rate. This may not be in your best interests if you plan to stay in the home for a long time. You will pay more in interest than it would cost you to pay the mortgage insurance yourself.

On a conventional loan, you can request to have PMI cancelled once you have reached 20% equity on the home. However, if this is occurring through appreciation, you may need to pay for a new appraisal to show the lender that the value of the home has risen sufficiently to give you at least a 20% stake.

The bottom line is that MPI may seem unfair and that some offshore insurance companies are getting rich off of you for no reason. But it is important to remember that the lender has a higher risk when you put down less than 20% on your home. By paying mortgage insurance you are protecting the lender, and it allows you to get into a home of your own much sooner than you otherwise would have.



CFPB Legal Capacity Diminished by Trump.  All Bark No Bite Threat to the Banking System.  How Does this Affect Mortgage Products?

Since President Trump took office, he has been working hard at scaling back parts of the Dodd Frank Act, including the legal capacity and scope of the CFPB Consumer Finance Protection Bureau. Director Mick Mulvaney has been busy with a number of changes that some say will take the bite out of the agency and affect consumers and how they get mortgages.

When Mulvaney became the acting director of the CFPB in January, he told the agency staff that the philosophy of the previous director was to push the envelope in its mission to root out what the previous director said were ‘the bad guys’ in the financial world.

Mulvaney has said that the notion of pushing the regulatory envelope scares him somewhat; he thinks it is inappropriate for any federal government entity to push the regulatory envelope looking for a ‘bad guy.’ Mulvaney noted that he would only look to file lawsuits against unavoidable and quantifiable harm. The agency is relying more on its efforts for rule-making as a change engine rather than enforcement, so the CFPB is not looking as much at lawsuits and fines to scale back bad financial behavior. Rather, the CFPB is looking to create and implement new rules, rather than changing dangerous financial practices.

In the several months since Mulvaney has been leading the CFPB, he has brought in policies that are reducing rulemaking, enforcement and personal data being collected. Some argue that enforcement was the biggest area the CFPB has had an impact on yet. The new rules for payday lenders, mandatory arbitration and prepaid cards were thought to be major victories for the CFPB, but they all are being slowed or killed since Mulvaney took leadership.

The new direction of the CFPB has had many fearing that Mulvaney would actually shut down the agency, or at least gut it from the inside. Mulvaney has told people in the agency that the law does not allow him to actually shut down the CFPB. But there is no question he is working to scale back its ambitions. This past January, the acting director requested the Federal Reserve not give the CFPB any money for Q2 2018. Instead, he said the CFPB should use some of its $177 million reserve fund to handle current operations. With this new mission being laid out by the Trump administration, it is making clear that the CFPB is going to be smaller, quieter and not as active a financial regulator.

The CFPB and the Mortgage Markets

One of the aspects of the Dodd Frank Act that was seen as important was attempting revamp how mortgages were underwritten in the US. Before the last crash, it was possible to get a mortgage with limited assets, little documentation, and even without proof of employment. These days under Dodd Frank and the CFPB, it is difficult to get a mortgage unless you actually can prove that you have income and a job. This is not going to change under the different scope of the CFPB.

The mortgage market in many ways is as healthy as it has been in a long time. While interest rates are considerably higher than they were a year ago, incomes are also higher, and unemployment is lower. As the economy is getting better, mortgage rates continue to go up, with a conventional, 30-year mortgage rate now at 4.75%.

The higher rates seem to have been driving more people buying homes because some are afraid that prices will continue to climb. Many financial experts expect mortgage rates to go through the important barrier of 5% in the not too distant future.

Mortgage rates mostly depend upon what investors expect. Good economic news in recent months conversely tends to be bad news for interest rates because a strong economy increases fears about inflation. Inflation leads to some fixed rate investment products such as bonds to lose their value. The possibility of inflation makes bonds not as appealing. When fewer people want bonds, the price for them decreases, and rates will rise in response as more people are putting their money into other investments.



What Do Rising Mortgage Rates Mean to the Housing Market in California?

Home prices in Southern California rose 7% from a year ago in April to hit an all-time high. This is a big increase in a time when increasing interest rates are making it more difficult to afford a home in the US, but especially in more expensive areas in California.

Mortgage interest rates on a 30-year, conventional, fixed mortgage is approximately 4.55%, and generally on the rise. Meanwhile, southern California’s median sale price for new and resale homes and condominium was up $520,000, which was an increase of $1,000 from the last high set in March. According to one real estate agent in Los Angeles even though rates are rising and making borrowing money more expensive, the market is still hot and not showing a sign of ending.

But agents here say buyers also are asking the same question. They wonder if price appreciation will start to slow as people find it more difficult in California to find an affordable home. But it is not likely home values will plunge any time soon unless the economy gets worse fast.

One of the problems in southern California is job growth continues to be strong and not enough homes are being built. This is creating a mismatch between demand and supply. So, even with mortgage rates much higher than a year ago, it seems that many buyers in this part of the country continue to want to buy.

Home sales did fall 1.5% last April though compared with a year ago. This could be because the number of homes that were offered for sale fell in recent months, compared to the same month last year. The drop-in sales also may indicate that some buyers are having difficulty affording the homes that are listed on the market.

Another reason there may not be a major downturn in prices here is because lending standards are tougher than a decade ago, which was in part what crashed the economy.

A lender in Los Angeles said that the real estate market here is not at a breaking point yet. There is no ticking time bomb like the last time when there were too many home owners with stated income. In the mid-2000s, it was possible to get a mortgage with little documented evidence that you had the income to support the loan.

To get a better idea of what is happening to prices in southern California, look at this data from April 2018:

• Los Angeles County: Median increased 7.3% to $590,000
• Orange County: 5.9% to $715,000
• Riverside County: 6.1% to $375,000
• San Bernardino County: 10% to $330,000
• Ventura County: 4.4% to $585,000
• San Diego County: 8.6% to $570,000

Home mortgage rates have been rising in 2018 largely because investors think inflation is going to rise. Last week, the typical interest rate for a 30-year mortgage rose to 4.61%. At that rate, the typical home in this area at a value of $520,000 would have a $2,781 mortgage payment for buyers who can put down 20%. In January, the median home price was $507,000, and rates at the start of the month were only 3.95%, which would have made a monthly payment of $2,554 when putting down 20%.

Rates across the country were in the low threes to low fours for many years. But the very low cost of borrowing, plus steady job growth and a lack of home building caused the rise in home prices that are being felt in California.

Theoretically, higher mortgage rates can cut buyer demand and slow the climb of prices. But the evidence of this happening in the real world is still rather murky. Some agents in southern California say the increase in mortgage rates could cause would be home buyers to make a smaller bid for a home or to stop their home search. But others say clients are doing the exact opposite: Stretching even further because they think the rates are going to be climbing higher next year.

The bottom line is that the mortgage rates have not yet had a major dampening effect on the housing market in places such as southern California. But if they keep rising into the 5% range next year, this could change.


Fake News, What About Fake Economy.  Job Numbers Are Good but Payrolls stagnant.  How Many Real Quality Jobs Created Under TrumpEconomics?

Are you thinking about buying a home? Then you are probably curious to know how the American economy is doing. Generally, under President Trump, Americans think the economy is doing well. How much of that is reality and how much of it is perception is open to question.

A CBS poll from May 2018 found that two out of three Americans believe the economy is in good condition. Most of them also believe Trump’s policies are at least partially responsible. Naturally, more Republicans rate the economy as doing well than Democrats.

That survey has generally tracked Trump support and opposition levels over the first two years of his presidency. These days, more Americans are feeling positive about the economy; the ranks of the strongest Trump backers have gone up 22% from 18% in January. Many of these Trump supporters had had more of a wait and see attitude about Trump.

However, some question how rosy the economy really is; Trump is a good salesman, and it could be that some of what is going on is hype. Consider the following points:

  • Some economists say the economy has not changed much since the end of the Obama administration, in terms of measured economic growth. GDP continues to grow but at a relatively modest rate of 2.3%. That is what it grew at in Obama’s second term, too.
  • Unemployment is doing, but hiring has not been as robust as some believe. Since Trump took over, payrolls have expanded by 186,000 jobs per month. Over Obama’s second term, it averaged 216,000. Also, the unemployment rate was falling under the latter half of the Obama presidency.
  • Wage growth has been disappointing under Trump, but it was under Obama, too. Adjusted for inflation, earnings each hour grew very little over the last year – just .4% in March compared to the year before. Obama did see a few periods of real wage growth above 2%, but his record was not good either. Some companies announced plans after the Trump tax cut to use the money saved to increase worker pay. But many of the companies probably were going to do it anyway and used the big PR announcement to curry favor with Trump.
  • Federal deficits as part of the whole economy did grow under Obama in the first term. This was largely because there was a major financial crisis. Tax revenues shrank. Federal spending went up thanks to unemployment benefits being used and stimulus efforts. As the economy got better, deficits did shrink but they did not disappear. Under Trump, the deficits have exploded again; this is due to spending increases and tax cuts.
  • It should be noted that we have not seen the full impact of the Trump tax cuts yet. But experts contend that their effects will probably be short term and not that significant. Consumers have not really noticed their increased paychecks yet. Also, people who get the most benefit are the wealthy who are not as likely to spend their windfall.

In the end, experts generally agree that presidents get too much blame and credit for good and bad economies. Trump is very good at promoting economic numbers that put him in a good light, and it is true that the economy is much stronger than a decade ago. But a lot of that is just because of the economic recovery that has been occurring under two presidents for a decade. It also is important to remember that Trump is known as a pro-business person, and some of the good ratings of the economy under him could just be because people think a businessman would have to be good for the economy.

If you are thinking about buying a home now, it really comes down to your personal financial situation. Keep in mind that rates are generally on the rise, and home prices have increased by 6% on average since last year in the US. It seems we are generally in a rising interest rate environment in 2018, with it unlikely that rates will fall below 4% again anytime soon.



Mortgage Insurance Rates Going Up with Interest Rates.  What Does this Mean to First Time Homeowners?

Higher mortgage interest rates and mortgage insurance rates are making it harder for first time home buyers to get a mortgage in 2018. While the US economy is doing well, the higher rates make it more challenging for buyers with no equity in a previous property to be able to afford a home.

In popular metro areas such as Denver, buyers are hurrying to close a deal before the rates get much higher, which stand at approximately 4.7% as of May 2018. While these rates are low in historical terms, they are at least a point higher than last year.

In Dallas some buyers are moving further out to find homes they can afford, as prices in this area are going up as much as 10% per year. In Los Angeles, there is a massive home shortage and most homes that go up for sale receive several offers.

The problem with higher interest rates is that just a .5% higher rate can increase your monthly payment and add tens of thousands of dollars of interest payments over the life of a 30-year mortgage. In 2018, home prices are rising faster than incomes in much of the country and the higher rates can be more than enough to shut many first-time buyers out of the market. Plus, higher mortgage insurance costs are occurring as the hot housing market is allowing insurers to raise their rates as well. Mortgage insurance rates being higher also affects first time home buyers. If you put down less than 20% on your home, you must pay for mortgage insurance unless you have a VA mortgage. Most first-time home buyers have difficulty coming up with a 20% down payment, so higher mortgage insurance rates affect them especially.

First time home buyers can expect that a combination of low inventory, higher prices, higher mortgage rates and higher mortgage insurance rates will make it harder to buy a home in 2018. Some economists think the economic indicators mean US home sales this year will remain flat even though the economy is strong as a whole. For example, a buyer in Colorado highlighted by USA Today this month said that he put in 11 offers on homes and lost out every time to other buyers who offered more money. Rising rates made it harder for him to afford a home.

He said that the rates continued to climb, and the more it happens, the smaller home you have to buy. The man eventually settled on a new $370,000 townhome with an interest rate at 4.7% but he cannot lock his rate until later in May, so it is possible that he could have to pay more. Some industry experts think we could see 5% rates before the end of 2018. This could really put a damper on the housing market for first time buyers.

Right now, the national median home price is $225,500, which is 3.8 times the median income of $59,000. In cheaper parts of the country in the Midwest, it is easier for first time buyers to get into homes. In Pittsburgh, a median priced home is only $125,000 which is only 2.2 times the median income of the area of $56,000. But in Los Angeles and Seattle, the median price of homes is as high as $600,000, which is eight or nine times the median income of $66,000. This is putting first time buyers completely out of the market.

If you are a first-time home buyer and are worried about being priced out of the market with higher rates, mortgage insurance rates and higher prices, here are some tips:

  • Ask your lender about first time home buyer programs. Some lenders work with state agencies to provide first time home buyers with rate discounts, help with down payments and educational resources. You may be able to find a grant to help you with your down payment, for example.
  • Look for lenders that offer government backed loans. Government backed mortgages are good choices for many first-time buyers. They offer low rates and low-down payments. FHA home loans are great for first time buyers with 3.5% down payments and rates that are below market.
  • Make sure you very carefully shop mortgage interest rates. You may be enticed by a super low interest rate in an advertisement. But this number often does not include all the closing costs and fees and could be for only the best credit borrowers. You are better off looking at APRs which have all costs figured into the number.

The reality is that it may be harder to find a home to buy in some areas of the country right now for the first-time home buyer. It really comes down to what part of the country you are in. But there are often options available to help you to get into a home loan you can afford so you can enjoy the American Dream.



What Do the Midterm Elections Have to Do with Mortgage Rates?

After a momentary pause in May, mortgage interest rates are back on the rise. According to data released in mid-May 2018, the average mortgage interest rate for the 30-year fixed rate mortgage was 4.62%. A year ago, home mortgage rates were only 4%. The 30-year fixed mortgage rate has not been this high since 2011.

The 15-year fixed mortgage is now 4.08%; it was only 3.27% a year ago. The five-year adjustable rate mortgage is 3.82% and was only 3.13% a year ago.

Why Are Mortgage Rates on the Rise?

Mortgage industry insiders say a strong economy, low unemployment, higher oil prices and comments from Fed officials are contributing to higher rates. Markets are expecting there to be three interest rate hikes this year, but it is possible there could be a fourth Fed rate hike before 2019.

After a big sell off in the bond markets after strong economic data was released, the yield on the 10-year Treasury went above 3% for its highest rate in seven years. Because how long-term bonds move is the best indicator of what mortgage rates are going to do, home loan rates went up. As yields rise, so do interest rates.

According to, more than 50% of experts think mortgage rates will continue to rise for the rest of May. Generally, the price paid for a better economic environment is higher inflation and higher interest rates. That is why mortgage rates are the highest they have been in seven years.

Many experts think rates will continue the slow rise higher this year, going into fall and the midterm elections. Generally, if the Republicans hold Congress, it is possible that rates will continue to rise as markets will expect stronger economic activity. If Democrats take at least the House, it is possible rates could fall.

Regardless of who takes Congress, there is little doubt that higher rates are leading to more skepticism among potential buyers. Mortgage applications fell again last week with the market composite index falling 2.7% from the week before. The home refinance application rate fell 4%.

Experts say the combination of higher mortgage interest rates and higher prices is making it harder for people to apply for mortgages. In many cases, volatility in interest rates is good for the housing market, because it pushes people to buy before they go higher. But as there have been frustrations with high demand and low inventory, there could continue to be a drop-in mortgage applications.

As rates get closer to 5%, the markets could start to see what is called rate lock. This is when people stay in their homes with low rate mortgages than trade into a bigger or better home with a higher rate. For example, if you refinanced in 2017, you may have been able to get a rate below 4% for a 30-year mortgage. Those rates are long gone. If you were to buy another home today, you could go from a 3.5% mortgage to 4.5% or higher. That adds hundreds of dollars per month to your mortgage payment.

Experts say a one percent increase in mortgage rates can cause a drop in home sales of 7%. At this time, price increases on homes have not shown much sign in dropping, but as rates get closer to 5%, it is possible that this will start to happen.

It will be interesting to see what happens to mortgage rates around the Congressional election. As noted earlier, we could see higher rates if the GOP holds Congress. But it would not be surprising to see volatility in late October and early November before the election. There is a lot of uncertainty at such a time, and markets do not like uncertainty. But once the election is over, rates will probably continue to move higher as the economy continues on a strong trajectory.



mortgage insurance payment

Mortgage Insurance –  Is Paying This Every Month a Necessary Evil?

Even in 2018, some home buyers have enough money to make a big down payment on a home, but many do not. Many first time home-buyers in particular lack equity in another property and cannot make at least a 20% down payment. And if you cannot swing putting 20% down, you need to become familiar with mortgage insurance.

Mortgage insurance is usually required for borrowers who are unable to put down at least 20% on a home. Mortgage insurance is required by most lenders because if you want to borrow a lot of money and do not have a large down payment, the bank is exposed to more risk. People who do not put down big down payments are more likely to default on the loan.

With private mortgage insurance (called PMI with conventional mortgages and MIP with FHA mortgages), you pay extra money up front and each month to pay for insurance that will cover most of the loan balance if you stop paying. With this type of assurance, the lender can lend money to borrowers with smaller down payments.

Mortgage insurance helped the last financial downturn from being even worse; it is estimated that 11% of mortgages in effect in 2007 to 2010 were at least 30 days late, and millions of homes did eventually foreclose. That’s one of the reasons why many banks and lenders do not offer the no PMI loan.

Convention Loans and Mortgage Insurance

If you are getting a conventional mortgage and have less than 20% down, you must get PMI. The premium that you pay will vary based upon the loan to value of the property and your credit score. Whether the loan is fixed or variable also will affect the rate.  The more money that you can put down, the less you will need to borrow and the less you will pay for PMI.

Your PMI is tied to the LTV, so the amount you pay monthly will slowly decline as you build more equity. Building equity simply means you are paying off some of the loan over time and you own a bigger percentage of the house.

The good news with PMI, while a necessary evil for many borrowers, is that it can be cancelled once you have reached 78% of the home value or sales price, whichever one is less. The bank is required by federal law via the Homeowners Protection Act of 1998 to cancel the insurance. If you believe your home value has increased, you could negotiate for PMI to be cancelled earlier. But you will probably need proof in the form of a new appraisal to convince the lender.

But do not rely on the lender to let you know when you can cancel PMI. As you can probably guess, many lenders will drag their feet in cancelling PMI. The bank will make more money off you if you continue to pay for PMI past the 22% equity mark. So, be proactive and keep tabs on how much equity you have in the home. When you are approaching 20% equity, contact the bank and let them know you expect that they will cancel PMI soon.

FHA Loans and MIP

Mortgage insurance for FHA home loans is similar but a bit different. You need to pay for the mortgage insurance premium up front and an annual mortgage insurance premium that is paid each month as part of the mortgage payment. FHA mortgage insurance is more expensive than conventional, but at least you pay the same amount regardless of your credit profile.

One thing to know about FHA mortgage insurance is the date June 1, 2013. If your loan was closed after this date, you must continue to pay mortgage insurance for the life of the loan. The only exception is if you put down at least 10%. In this case, MIP can be cancelled after 11 years. Yes, this policy sucks. That is why once you have at least 20% equity, you should strongly consider refinancing your home loan into a conventional loan so no mortgage insurance is needed. However, if interest rates have risen since you closed your FHA loan, you may not want to do this. You would be wise to keep an eye on mortgage rates and when they are at least .5% below your FHA rate, you may want to consider a refinance. It is absurd in our view to pay mortgage insurance premiums when you have far more than 20% equity in the home.

VA Loans – Good News

If you have a VA-mortgage loan, you have a great deal. Not only can you get 100% financing and rates even lower than FHA: You also do not have to pay for mortgage insurance! There is a one time  funding fee for the loan up front, but no monthly mortgage insurance payment.

The bottom line is that mortgage insurance is a necessary evil for many Americans. But once you have 20% equity, you should either request it be cancelled, or refinance out of your FHA loan into a conventional so you no longer are paying that extra pesky payment each month.




pmi tax deduction

Are Private Mortgage Insurance Payments Tax Deductible?

Home buyers who put down less than 20% at closing must buy private mortgage insurance. This can significantly increase your mortgage payment. A typical monthly private mortgage insurance payment is $100 to $200 per month for the typical $200,000 home in the US. But the good news is that mortgage insurance payments are often tax deductible, at least as of 2018.

The Tax Relief and Health Care Act introduced the private mortgage insurance deduction in 2006. Congress extended the benefit in 2015 when it passed another tax relief law. Under the terms of that law, the tax deduction expired at the end of 2016. The extension was only for one year. Since then, the US government has been renewing the tax deduction.

The private mortgage insurance tax deduction is one of the deductions that the federal government reviews every year and it will probably be addressed at some point under the recent tax reform law passed by the GOP.

tax deductionMost taxpayers who claim this deduction are middle class earners; the tax deduction phases out when you get into higher income brackets. At this time, deductions for mortgage interest and real estate taxes are also still good; they have been reduced to a limit of $750,000 and $10,000 respectively, however.

If you must pay for mortgage insurance, you should still be able to tax deduct those payments for the most part, depending upon your income. This helps to ease the bite of mortgage insurance at least at tax time!

References: why PMI is tax deductible  and answers on mortgage insurance premiums

More About Mortgage Insurance and PMI

Lenders usually require private mortgage insurance to secure the debt if you stop paying the mortgage. It is charged to the home buyer who cannot make a 20% down payment. The mortgage insurance policy can be issued by a private insurance company or by the FHA, USDA or VA, if you get a loan backed by one of those US government entities.

At this time, the mortgage insurance premium deduction applies to loans that were taken out on or after Jan. 1, 2007. The insurance policy must be for a first or second home. For most people, you cannot rent out the second home; it is intended to be for vacation homes. But you might still qualify for the deduction if you treat your second home as a business asset. However, home equity loans do not qualify for this deduction. Nor do cash out refinances.

You may not claim the mortgage insurance tax deduction if your adjusted gross income is higher than $109,000, or $54,500 if you are married and you file separate tax returns. The deduction starts to go away at $100,000 for single filers, and $50,000 for married taxpayers with separate tax returns. The phase out requires that you take off 10% from the premium amounts that you paid for every $1000 that your income goes over $100,000 or $50,000.

Mortgage insurance premiums that you paid during the last tax year are reported to the IRS on Form 1098. You should get this form from your lender after the tax year closes. There is no limit on the amount of the deduction that you can claim, if you qualify.

You can deduct the entire amount, and prepaid insurance premiums may be allocated over the term of your entire loan or 84 months, whichever is shorter. Note that mortgage insurance premiums are a type of itemized tax deduction. You report them on line 13 of Schedule A.


mortgage statement

What Your Loan Servicing Company Isn’t Telling You About PMI and Why You Don’t Need to Pay It Ever Again.

Many Americans buy a home with less than a 20% down payment. Being able to put down less money to enjoy the American Dream opens up home ownership to millions of people who may not have been otherwise able to buy. But buying with a lower down payment usually means paying for monthly private mortgage insurance or PMI.

PMI protects the lender if you default on the mortgage. The risk of default is higher on a property with down payment less than 20%. PMI typically costs many home buyers $100 or $200 per month and is a percentage of the price of the home.

Home owners often are irritated that they must pay for PMI as it is an extra expense on top of the mortgage principal, interest, taxes and home owner’s insurance. But your loan servicer may not tell you that you do not need to pay for PMI in most cases forever. Because they do not say anything, some homeowners may pay for PMI far longer than they need to. It is possible you could pay thousands of dollars to the lender when you did not need to.

How to Get PMI Cancelled

As a homeowner, it is important to know when you can have PMI cancelled. When you have reached 20% equity in the property through your payments and/or appreciation, you have a legal right to have PMI cancelled. You can check your loan documents for the amortization schedule to see at what point during the loan that you have 20% equity.

It also is possible you could reach 20% equity faster based upon home appreciation. If you think that your home has appreciated markedly, you may need to pay for a current appraisal to show the lender what the current value of the home is.

If you think you have 20% equity in your home, you need to request in writing that PMI be cancelled. You should provide your evidence in the letter that you have 20% equity. The usual proof required is a state certified appraisal; the URAR 1004 report is what is required for single family homes.

Most mortgage lenders will require you to fill out a form to request the PMI be removed. Keep in mind that you must demonstrate a good payment history for PMI to be cancelled. If you have missed any payments in the past 12 months, the lender may want you to make another year of timely payments before they cancel the policy. But some lenders may want to see that you have more than 20% equity before they will cancel the mortgage insurance. Some of them may want to see 25% equity. However, it is important to know that the mortgage lender is required under federal law to cancel your mortgage insurance once you have 22% equity, or 78% loan to value. Many loan servicers may not want, you to know this and they probably will not tell you. So, if you are getting close to this point in your loan, be aware that they must cancel the policy at that point if you have been making on time payments.

Tips for Cancelling PMI

First, make sure that you contact the proper mortgage lender. The original lender often sells the loan to another company. If you have any questions, talk to the lending officer who first handled your loan; he or she can tell you who to contact to request PMI be cancelled.

Second, the Homeowners Protection Act mandates that servicing lenders make homeowners aware of the PMI they are paying for and how to have it cancelled. Any questions about this, you should check your loan paperwork. As noted above, the lender is required to provide an amortization schedule for the entire length of the loan. That document will tell you when you will reach 20% equity. But you could reach that point faster because of appreciation.

Third, another option to cancel PMI is to refinance into a no-PMI mortgage. If you have 20% equity, the other lender will not require PMI. This could be an option if you want to refinance into a lower rate or even pull out cash. You could have to wait to refinance the loan for at least two years to get out of PMI. Check with your lender.

Fourth, you can get rid of PMI faster if you overpay on your loan; even paying $50 extra per month can make a substantial difference over time.

Fifth, remodeling the home to increase the value can help you to cancel PMI faster. Experts recommend upgrading a kitchen or bathroom or replacing the windows to boost the value substantially.

The key takeaway is that PMI is an extra expense that is worth getting rid of as soon as you can. Follow our tips above so you can stop paying for it as soon as possible.