Before going with a piggy back mortgage, look at the option of getting one loan and paying PMI ( Mortgage Insurance). PMI is currently tax deductible and might be cheaper in the long run.

     As stated in previous Diaries of A Mad Mortgage Broker entries, an 80-10-10 or better, will allow you to eat up the equity of your home and avoid PMI.However, PMI will also give you this benefit but with the cost of insurance.The key is to compare apples and oranges as to monthly payments and see which is cheaper in both the short and long runs.The cost, or interest rate, of the second mortgage will be higher than the interest rate on the first mortgage.Also keep in mind, that one loan will have an overall lower interest rate than two.When tacking on the PMI, you need to see which is cheaper; knowing that the PMI will go away one day soon.

     The good news is that PMI is now tax deductible. As of January 1, 2007, you can deduct the cost of PMI (Usually ½ of 1% of the loan amount) for the year 2007.

Here are the rules:

1. this legislation was enacted in 2007 and only applies to new mortgages taken out in 2007.

2. You need to have a gross income of no more than $100,000.

3.This is only for the year 2007 and will need to be passed again for 2008.

As banks remove the option of taking out a piggy back or second mortgages, PMI will become the only option available.For the past few years, we have been comparing the difference in the monthly payments of with or without with our clients.As interest rates go higher, PMI is more the more desirable.The tax deduction is icing on the cake.

So, where am I flying off to tomorrow?

– Dale Siegel