Like stamp duty and GST, LMI is a tax-deductible expense. The total deductible amount depends on how long the property was in the rental market (if the LMI is charged in the middle of the year). Yes, as a real estate investor, most of your loan expenses are tax-deductible, and this includes LMI premiums. Lenders who waive the LMI in favor of their own risk commission (also called reduced capital commission, REF or low deposit premium, LDP) are able to maintain the lending process in-house through their own policies.
LMI, also known as lender mortgage insurance, is insurance that the lender takes out to protect against the risk of not covering the outstanding balance of the loan if the borrower cannot meet the loan payments and the property is sold for less. While most lenders tend to trust lenders' mortgage insurance if the LVR is greater than 80%, some lenders have created their own alternative (and often in-house) risk process. This is based solely on whether the lending provider partially agreed with the lender to partially reimburse the LMI fee. It allows homeowners to obtain a mortgage with a deposit of only 5% of the purchase price if the lender is satisfied with their income and their prospects for repayment.
If you don't have the required deposit for the mortgage loan, which is usually 20% of the value of the property, the lender will normally require an LMI and the cost will likely be charged to you (the borrower) as a commission and added to your loan. If an investor decides to sell their investment property, the LMI can also be deducted from capital gains tax, if any. Providing or obtaining an estimated insurance quote through us does not guarantee that you can get insurance. The First Home Deposit Plan (FHLDS) allows first-time homebuyers with deposits as low as 5% to obtain a mortgage loan without paying the lender's mortgage insurance fees (LMI).
This can happen if you want to refinance your mortgage and the equity of your property is less than 20% of the value of the property at that time. If you want protection in the event of a default, you should consider mortgage protection insurance. This video, which answers some of the most frequently asked questions about LMI, is a great way for lenders to understand the basics of mortgage insurance. Both stamp duty and GST are paid in lenders' mortgage insurance and are generally included in the total quoted price of your LMI.
Mortgage protection insurance insures borrowers and can cover mortgage repayments in the event of unforeseen circumstances, such as unemployment, injury, illness, or death. There aren't many LMI insurers in Australia, which means that if your mortgage loan application is rejected due to the criteria of an LMI insurer, you may want to apply for another mortgage loan from a lender that insures itself or uses a different LMI insurer. Qualifying for the LMI means passing an insurance company's qualification guidelines, as well as the lender's criteria for applying for a mortgage loan.
