Mortgage insurance payments are tax deductible

The mortgage insurance deduction will help certain low and moderate income homeowners, especially first-time homebuyers and those struggling with higher house payments as adjustable rate mortgages reset. By the way: This type of insurance should not be confused with the homeowners’ insurance you take out on your home and its contents in case of fire or other disaster.

It’s also not the same thing as mortgage protection insurance, which is a form of life insurance some people buy to pay off a mortgage when they die. Mortgage insurance is required by government and private lenders on home purchases in which the buyer makes a down payment of less than 20 percent. Often, these are first-time buyers or people with lower incomes.

The insurance protects the lender if the borrower defaults on the loan a very real prospect last year for homeowners who took out adjustable mortgages with low teaser rates that have since risen. For the first nine months of 2007, about 16.7 percent of the estimated $1.98 trillion in new mortgages originating during that period had private or government mortgage insurance, according to Inside Mortgage Finance Publications, which researches and tracks the residential mortgage business.

Typically, homeowners pay an average of $50 to $100 a month in mortgage insurance on a median single family home price of $217,600, according to the Mortgage Insurance Companies of America, a trade association. The new tax deduction could save taxpayers who itemize as much as $300 to $350 in federal taxes, MICA estimates. There are restrictions.