Federal tax deduction for mortgage insurance may be coming your way as bills which include the provision were passed last month by both the House of Representatives and the U.S. Senate.

Borrowers who close loans in 2007 or later and make less than $100,000 a year will be eligible to deduct the private or government mortgage insurance premiums.

This deduction will result in an average tax savings of $300 and $350, according to Howard Glaser, a former senior official in the Department of Housing and Urban Development. During the past several years, about one in five new loans have included mortgage insurance.
Maligned for years when two out of five loans were saddled with the coverage, and before laws mandated full disclosures and the right to cancellation, mortgage insurance has pluses and minuses. The insurance protects the lender from default, but the premiums are paid by the home owner.

Since 1999, private mortgage insurers must annually disclose the amount of insurance and cancel mortgage insurance when a homeowner pays down the mortgage to 78 percent of the original purchase price. A lender must cancel the insurance if requested once the mortgage balance 80 percent or less of the original value of the house. The borrower must be current on payments and meet other requirements.

Unfortunately, the law doesn’t apply to government insured loans and some others. If the President signs it, the new law will allow the tax deduction for all mortgage insurance — private and government — paid by qualifying tax payers.

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