MIP Anyone Figure Out Yet?

[ddoshan]

I haven't figured it out. A lot of 1098's from the bank show large amounts such as 2500 to 4000 dollars (sometimes more) in MIP paid. This has to be some sort of lump sum up front payment, one would think, subject to the 84 month rule. Yet these same banks in their breakdown of the payments also show so much principal, interest, taxes, homeowners ins. etc. along with say 45 dollars a month for the MIP. How can the homeowner have so much shown in the box on the 1098 for the MIP paid (also shown on the settlement statement) yet also be paying 30 to 50 dollars a month as part of their house payment.
Normal bank mortgage, not one of those VA or Rural Housing originated ones.

I don't get it. In particular just what may be eligible for the deduction.

[mactoolsix]

Note that most mortgage companies are charging large upfront fees when MIP applies, then on top of that they charge a monthly premium. Premiums must be treated as paid in the period they are allocated. Thus an upfront MIP of say $5,000 should be allocated over the life of the mortgage or 84 months if shorter.

See Pub 936

http://www.irs.gov/publications/p936/ar02.html#en_US_2013_publink1000296058

Mike

[ddoshan]

Note that most mortgage companies are charging large upfront fees when MIP applies, then on top of that they charge a monthly premium. Premiums must be treated as paid in the period they are allocated. Thus an upfront MIP of say $5,000 should be allocated over the life of the mortgage or 84 months if shorter.

See Pub 936

http://www.irs.gov/publications/p936/ar02.html#en_US_2013_publink1000296058

Mike

Just what in the heck are these large up front fees for. To reduce the regular monthly premium amounts over the term. Or, as it seems to me, kind of a rip off. Do you know of any particular justification for this other than they can. Just curious.

[mactoolsix]

Beginning April 9, 2012, all new FHA mortgages require a 1.750% upfront mortgage insurance premium (UFMIP), plus an annual mortgage insurance premium of that ranges from 0.000% to 1.600%, depending on the characteristics of your FHA-backed mortgage.

http://themortgagereports.com/8299/fha-mip-april-june-2012

Mike

[ddoshan]

Beginning April 9, 2012, all new FHA mortgages require a 1.750% upfront mortgage insurance premium (UFMIP), plus an annual mortgage insurance premium of that ranges from 0.000% to 1.600%, depending on the characteristics of your FHA-backed mortgage.

http://themortgagereports.com/8299/fha-mip-april-june-2012

Mike

Thank you for that information. I just got some papers from my granddaughter to do her and her husbands return and I see they have 4600 dollars shown in the MIP box for a home they just purchased last year. Seems kind of unfair to me to have to pay so much for this. That premium sure would add to the cost of a home.

Did I see somewhere that now this premium continues thru out the term of the loan. And no longer can be stopped once the homeowner reaches a certain level of equity in the home.

[ddoshan]

Beginning April 9, 2012, all new FHA mortgages require a 1.750% upfront mortgage insurance premium (UFMIP), plus an annual mortgage insurance premium of that ranges from 0.000% to 1.600%, depending on the characteristics of your FHA-backed mortgage.

http://themortgagereports.com/8299/fha-mip-april-june-2012

Mike

Now I am confused again. It now appears or seems to me that the rules are or indicate that prepaid or premiums allocable to future years should be amortized. Example they give is a homeowner who prepays all of his mortgage insurance at the time of purchase ... this should be amortized.
However, if as indicated in other posts, they now charge a flat up front fee also for the MIP should not that flat upfront fee be deductible as that is not payment for future years. The homeowner is still charged a monthly premium every year.

I am now more inclined to think that I should have been including the full amount of the 1.750% in mortgage ins. premium. Or the full amount shown on the 1098. Unless it was obviously a one time payment covering all future years.

[Nashville]

Double Barrel Approach

Think of it as a two-part analysis. A preparer should always look at the closing statement any time a house is bought or sold.

Mortgage insurance essentially is life insurance, should the debtor die and leave a mortgage. By charging mortgage insurance, the lender is protected against the death of the debtor and recover the loan in that event. Remember that rates are many multiple times what the buyer could pay in life insurance himself for the same amount of coverage. Mortgage insurance thus assures almost pure profit to the lender/insurer, so the financial companies are lobbying intensely for more legislation to require more and more coverage.

So when a buyer closes on buying a house, a large lump-sum payment for mortgage insurance is added to the closing costs. It can be thousands of dollars nowadays. In order to deduct this as PMI, the buyer most amortize this over 84 months.

But the gravy train for the financial companies doesn't stop there. In addition to requiring large amounts of PMI "up front" in the closing costs, a portion of the monthly payment contains even more mortgage insurance. The amount paid over the course of the taxable is a direct deduction on Schedule A and doesn't have to be amortized. The amount is commonly shown on the Form 1098.

So the full amount deductible can consist of two parts: the amount paid during the year with the house payment, PLUS any amortization of a lump-sum charge when the house is bought.

Another footnote to this saga: The deduction for mortgage insurance expired 12/31/13 so unless something changes with future legislation, this is the last year for it.

[ddoshan]

So when a buyer closes on buying a house, a large lump-sum payment for mortgage insurance is added to the closing costs. It can be thousands of dollars nowadays. In order to deduct this as PMI, the buyer most amortize this over 84 months.

But the gravy train for the financial companies doesn't stop there. In addition to requiring large amounts of PMI "up front" in the closing costs, a portion of the monthly payment contains even more mortgage insurance. The amount paid over the course of the taxable is a direct deduction on Schedule A and doesn't have to be amortized. The amount is commonly shown on the Form 1098.

So the full amount deductible can consist of two parts: the amount paid during the year with the house payment, PLUS any amortization of a lump-sum charge when the house is bought.

But that is what has me confused. The amount shown on form 1098 now is often in the thousands of dollars. But this amount does not seem to be a lump sum payment for future years which according to the rules should be amortized over 84 months. It appears to be, or at least include, the % mentioned previously now required to be paid upfront in order to obtain the loan plus any monthly premiums paid that year. Seems to be two different things to me. A required MIP fee in order to obtain the loan verses a one time lump sum upfront payment which I assume means they pay the premium upfront to cover the term of the loan and then no further monthly premiums.
The rules seem to say you must amortize lump sum premiums allocable to future years. These % required up front MIP do not seem to fit that criteria.

Who knows they may reauthorize this deduction. Anyway I would sure like to know for sure now.