Dec. 9 (Bloomberg) -- Premiums on private and government mortgage insurance will become tax deductible next year for some borrowers for the first time under legislation passed by the U.S. Congress.

Bills which include the change were passed yesterday by the House and early today by the Senate. Borrowers who make less than $100,000 a year will be able to write off the full amount of their premiums. Homeowners making more than $110,000 won't be eligible.

Private mortgage insurance is often required of borrowers who don't have down payments of at least 20 percent, and don't take out a second ``piggyback'' loan. Government insurance is mostly offered through the Federal Housing Administration to borrowers considered too risky for traditional loans programs, usually first time home buyers. It's also taken out by military veterans.

During the past five years, about one in five new loans have been taken out with mortgage insurance, with more than half of those carrying private insurance, according to Jeff Lubar, a spokesman for the Mortgage Insurance Companies of America, a trade group for private insurers.

$300 in Savings

The change ``will go a long way to help homeowners and potential homeowners who simply want to own a piece of the American dream,'' said Marc Morial, president of the National Urban League, in a statement.

The tax breaks, which will take effect for new loans next year, will result in average tax savings of between $300 and $350, according to Howard Glaser, a Washington lobbyist and former senior official in the Department of Housing and Urban Development, which oversees the FHA.

An increase in the use of home-equity loans by borrowers to cover down payments in recent years has hurt private mortgage insurers such as MGIC Investment Corp., Radian Group Inc., and PMI Group Inc. Private mortgage insurance is most often used on low-down-payment loans bought by government-charter companies Fannie Mae and Freddie Mac.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

Last Updated: December 9, 2006 14:21 EST