— Justin Time
If you don’t have 20 percent equity based on the newly appraised value of your home, then a conventional first mortgage is still going to require PMI. That may be OK if you have enough equity in the home to get a good rate on the new first mortgage. PMI isn’t forever. The Bankrate feature, ” Removing private mortgage insurance,” explains how you can get out from under PMI at a later date.
The Mortgage Professor’s Debt consolidation calculator can help you decide if refinancing makes sense and estimates the PMI payment on a new first mortgage.
There are some other options as well. You can shop for a first mortgage that doesn’t require PMI. It’s called a self-insured mortgage when the lender prices the default risk into the loan. You’ll pay a higher interest rate than with a conventional mortgage, but may recoup a portion of that if you can use the mortgage interest deduction on your tax return.
With a tax law change in 2006, PMI payments made in 2007 may be tax deductible. The Bankrate feature, ” New tax deduction created for mortgage insurance,” explains the change. No word yet on whether the deductibility extends into 2008.
To ask a question of Dr. Don, go to the ” Ask the Experts” page, and select one of these topics: “financing a home,” “saving & investing” or “money.”