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.
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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!
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I got a conventional loan 6.2% with Bank of America in 2007.
I refinanced with BoA in 2013 thru the HAARP Program at 4.75 interest. To the best of information available from BoA, I have paid PMI on both conventional 30 yr loans from Dec. 2007 to July 2020. In 2020, the PMI on my monthly statement dropped off snd, according to verbal communication with BoA agents, the PMI switched to TAMI without my consent or any letter notification. Is this lawful!
I am currently trying to refinance a new cash out 30yr loan at 2.89 rate. However as a retiree (73yr) with no active employment income ( but income supplements of 3 lucrative investment portfolios, a 401k, and three very adequate bank accounts), the stringent lending laws are making this refi difficult.
Your thoughts on BoA snd a new refi in process. Thanks.
Hi Janette, it is unlikely that BoA converted the PMI to TAMI. It is more likely that you have been paying on the loan for 14 years and the mortgage insurance has “fallen off”. Mortgage insurance is only required if you have less than 20% equity in your home. In most cases, folks will refinance once they have 20% equity and remove the mortgage insurance. In other cases, it will be removed once your balance reaches a certain limit. It sounds like that may be the case with your loan.
Regarding the refinance, there are certainly conventional loan programs that will take your account balances into consideration. This tends to be outside the box for many loan officers and lenders unless they specifically have experience with these programs.
I am happy to introduce you to someone that I know and trust for a second opinion if you would like.
If you would like an introduction, shoot me an email at scott@findmywayhome.com and let me know what State you live in.
I hope this helps?