PMI soon to be deductible?

[disneysteve]

Re: PMI soon to be deductible?

I doubt think a tax deduction would encourage people to not pay down their mortgage when by doing so they can get rid of the sustantial PMI they're currently paying.

Many people avoid paying down their mortgage to keep the tax deduction despite all logic to the contrary about how much that deduction is actually costing them. It makes no sense, but lots of people aren't so good at math.

[sweeps]

Re: PMI soon to be deductible?

Obviously no one should keep a mortgage just because you're getting a tax deduction. BUT the tax deduction should be a consideration when deciding whether to pay extra on the mortgage or pay extra on other debts or invest at a higher rate of return.

If someone is against making PMI deductible, then they should also be against having any amount of mortgage/HEL/HELOC above the 80% line not deductible as well.

[disneysteve]

Re: PMI soon to be deductible?

Obviously no one should keep a mortgage just because you're getting a tax deduction. BUT the tax deduction should be a consideration when deciding whether to pay extra on the mortgage or pay extra on other debts or invest at a higher rate of return.

True.

If someone is against making PMI deductible, then they should also be against having any amount of mortgage/HEL/HELOC above the 80% line not deductible as well.

Interesting suggestion. I'll have to think about that, but off the top of my head, I'm not sure I agree. I think those are two different things. Let's say I own my home outright - no mortgage. I want to build a huge addition, so I take a HEL for 90% of the home's value. I'm not sure how to compare that situation to someone paying PMI becaue they didn't have a large enough downpayment when buying the home. The two scenarios aren't really related in any way. Are they?

[tabbycat31]

Re: PMI soon to be deductible?

Obviously no one should keep a mortgage just because you're getting a tax deduction. BUT the tax deduction should be a consideration when deciding whether to pay extra on the mortgage or pay extra on other debts or invest at a higher rate of return.

If someone is against making PMI deductible, then they should also be against having any amount of mortgage/HEL/HELOC above the 80% line not deductible as well.

Tell that to my parents. They bought their house in 1978, and have not paid off the mortgage. When they get close, they take out HELs so they can keep the tax deduction.

[sweeps]

Re: PMI soon to be deductible?

Interesting suggestion. I'll have to think about that, but off the top of my head, I'm not sure I agree. I think those are two different things. Let's say I own my home outright - no mortgage. I want to build a huge addition, so I take a HEL for 90% of the home's value. I'm not sure how to compare that situation to someone paying PMI becaue they didn't have a large enough downpayment when buying the home. The two scenarios aren't really related in any way. Are they?

Yeah, disregard lumping the HEL and HELOC in there. Here was what I was getting at:

The argument is why should the government reward someone who is stretching too far (arbitrarily set at 80% of equity) to buy a house they cannot afford, right? So then why would it be okay for someone to take out an 80-10-10 double mortgage (to avoid PMI) and get the full tax deduction whereas someone taking a 90-10 single mortgage will get penalized? Doesn't make any sense.

[sweeps]

Re: PMI soon to be deductible?

In addition to that, why are HELs and HELOCs tax-deductible anyway? The purpose of a real estate tax deduction in my eyes is to make it affordable for more people to buy a home. Makes sense to make mortgage interest and real estate taxes tax-deductible for that reason.

But why are we rewarding people for pulling the equity out of their house after they've already paid down the mortgage? What incentive are we offering here, other than endangering the ownership of your home to buy whatever you feel like buying.

[ren]

Re: PMI soon to be deductible?

I don't think think leaving PMI as a non-deduction is penalizing those who opt for a 90-10, it's just not rewarding them for paying PMI. They can still deduct the full amount of interest. The person who gets the 80-10-10 is paying a much higher interest rate on that 10% HELOC (went to eLoan, plugged in the numbers on $100,000 house w/ $10,000 down, the second is 11.125% interest rate), which may be deductible, but is still a mighty expensive way to avoid PMI (roughly $40 a month on that $90,000 mortgage). It's a trade off.

You can't (to my knowledge) deduct your homeowner's insurance, why should your mortgage insurance be any different?

Rex, if you want to run the numbers again on 90% w/ PMI vs 80-10-10, this calculator might help. It gives you a side by side comparison instead of you having to do muliple calculations.

[sweeps]

Re: PMI soon to be deductible?

I don't disagree with your analysis, but I think you might've missed the bigger point. How does one decide what is deductible and what is not? You mentioned homeowner's insurance... why isn't it deductible? After all, again we're trying to make home ownership cheaper for all people because we value that. So who decides which home ownership costs should be deductible and which ones shouldn't be? It's silliness really.

[vsjhoc]

Re: PMI soon to be deductible?

I don't disagree with your analysis, but I think you might've missed the bigger point. How does one decide what is deductible and what is not? You mentioned homeowner's insurance... why isn't it deductible? After all, again we're trying to make home ownership cheaper for all people because we value that. So who decides which home ownership costs should be deductible and which ones shouldn't be? It's silliness really.

Definitely I think the Orkin pest control service should be deductible.

[ren]

Re: PMI soon to be deductible?

Think bigger, vsjhoc! Tthe house needs furniture, so furniture costs should be deductible. And a TV is like furniture, so I'll just deduct a 50" plasma screen, and then there's the surround sound system of my dreams...