Update on Loan Options,Tax Deductions & Rates

There are many mortgage and home financing options available, even with the many changes we have seen in the economy and lending industry over the past 19 months. Many government programs are still available, such as VA, FHA and USDA/Rural Development. Oklahoma still pushes for bond issues, although the assistance from the bond programs seems to "dry up" quickly due to high demand. There are still combination mortgages that can be utilized to achieve a low down payment, meaning a first mortgage and second mortgage, which are both tax deductible. There are still many conventional loan programs and everyone knows that home- buyers have a desire to save as much money as possible, especially with the present state of the economy. With private mortgage insurance, clients can still get quick approvals and benefit by deducting the premiums from their income taxes. The PMI can be canceled once there is a 20% proven equity position in the home, which can be verified with an appraisal ordered through the homeowner's lender once they feel they have achieved their goal of 80% loan to value ratio. It also automatically drops off once it reaches 78% of original appraised value.

Here are a few helpful details regarding the tax deductibility for private mortgage insurance (PMI) which was provided by RMIC this afternoon, one of the nation's largest private mortgage insurance providers:

"The home purchase or refinance loan must close between January 1, 2007 and December 31, 2010;
Household income must be at or below $100,000 for a full deduction of premium;
The premium deduction is reduced 10% for each $1,000 of income over $100,000;
The premium deduction is prorated in the first year based in the month the loan closes;
Applies to primary residence and one other residence purchased for personal use by the taxpayer;
Monthly, annual, and single MI premiums are eligible. Financed premium deductions should be taken over a seven year period."

RMIC's scenarie/example:
Assumptions:

Loan closed in July 2009 to purchase a primary residence
$80,000 per year household income
$200,000 loan amount
0.62% annualized MI premium rate
28% income tax rate
Conclusions:

Borrower is eligible for the tax deduction based on closing date, occupancy, and income
Annual MI premium is $1,240 ($200,000 x .0062)
Borrower would deduct $620 in 2009 (prorated based on closing month)
Borrower would deduct $1,240 each year thereafter until MI is canceled
Tax Deduction Savings:

The borrower's savings is $347 per year ($29 per month)

Note: Tax deductibility currently is approved through December 31, 2010. RMIC does not provide tax advice. Borrowers should consult their tax advisor to determine eligibility for this deduction. This information was published on June 16, 2009 by RMIC.

Just to give you an update, we are seeing rates begin to decline once again. On May 26th and over the following days, rates increased from 4.875% to a high of 6% on a 30 year fixed conventional loan term. Today (06/16/09) rates decreased to 5.625% (no points or origination fee with pristine credit - 740+ on purchase) and we expect them to decline again tomorrow based on the market's closing data. The federal government came in and purchased US debts, which it had promised to do periodically in an effort to reduce interest rates on mortgages to stimulate our nation's economy. There is still approximately $137 billion remaining in government funds to continue these periodic debt purchases. New home starts were much greater than predicted for May, which was good news for everyone. Let's hope the trend continues...
The Tulsa Parade of Homes will begin this Saturday, June 20th and pamphlets with listings, addresses and home information will be available at many locations beginning Friday, June 19th. Just remember, there are many opportunities to purchase and finance your home right now and you can't get in the game unless you check your options.
Have a wonderful week and enjoy our fine city and all its amenities and know that you live in the best city in the US, Tulsa.

Jeff Sargent
President
Residential Lending Division
ONB Bank & Trust Co
918.392.6572