What is Tax Advantage Mortgage Insurance?
Tax Advantage Mortgage Insurance is a great option for buying or refinancing a high Loan to Value (LTV) mortgage.
Tax Advantage Mortgage Insurance gets it’s name by “rolling in” the mortgage insurance into a higher interest rate, making it tax deductible as mortgage interest.
There is no special tax break associated with this structure of paying for Private Mortgage Insurance. I strongly encourage you to explore the actual tax benefits of taking a higher interest rate by consulting with a CPA or tax preparer.
Lender Paid Mortgage Insurance
Lender Paid Mortgage Insurance gives you an option to include Private Mortgage Insurance as part of your monthly mortgage payment.
Also know as Tax Advantage Mortgage Insurance, or LPMI, using Lender Paid Mortgage Insurance, you agree to take a higher payment in exchange for being able to write off more interest at tax time.
Essentially, this is the same as permanent mortgage insurance in the sense that it cannot be removed without refinancing, however, it is now tax deductible as mortgage interest, which may benefit some homeowners.
Tax Advantage Mortgage Insurance
TAMI is another name for lender paid mortgage insurance that focuses on the tax deductibility of the higher interest rate associated with an all inclusive payment.
Frequently Asked Questions
Q: Can I Get Tax Advantage Mortgage Insurance on a FHA loan?
A: No, FHA Mortgage Insurance Premiums cannot be rolled into the interest rate, or lender paid. Lender Paid, Tax Advantage Mortgage Insurance can only be used with Conventional home loans above 80% Loan to Value.
Q: Can I remove Lender Paid Mortgage Insurance?
A: The only way to remove LPMI is to refinance into a new first mortgage above 80% Loan to Value.
Q: Is Tax Advantage Mortgage Insurance more expensive than other Private Mortgage Insurance?
A: Private Mortgage insurance rates may vary, but in general, Lender Paid is not more expensive than Borrower Paid.
Understanding the Risks of TAMI & LPMI
It’s important that you understand this program, and how it can be presented to the consumer. Catchy names like Tax Advantage Mortgage Insurance, and Lender Paid Mortgage Insurance, have a positive spin that sounds like everything is great, all the time.
Not to discount the positive features, tax deductibility, of a Tax Advantage Mortgage Insurance program, there are some risks that you should be aware of.
Mortgage insurance is paid for as long as you keep the loan. Refinancing, or selling the home are the only ways to get rid of the mortgage insurance payment.
Your interest rate will increase if you are using a Tax Advantage program. Weigh the difference in interest rate (and payment), against the tax deduction increase you will net between the rate you could have secured, and the higher LPMI rate.
Ask an Expert
Using tax advantage mortgage insurance is a decision that you should only make after discussing with a mortgage professional, as well as your tax person.
If you have questions or comments, leave them below and I promise I’ll respond quickly!