Lenders Mortgage Insurance (LMI): A Simple Guide for Investors
What is Lenders’ Mortgage Insurance or LMI?
Buying property in Australia involves many costs. Beyond your initial deposit, you will need to budget for stamp duty, conveyancing, inspections and in some cases, Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender if you cannot repay the loan. It usually applies when you borrow more than 80 percent of the property value. It protects the lender, not you.
For investors, there is a silver lining. In many cases, Lenders Mortgage Insurance can be a valid tax deduction. This is where a switched-on accountant and good advice can improve your cash flow.
Claiming Lenders’ Mortgage Insurance (LMI) as a Borrowing Expense
You can only claim Lenders Mortgage Insurance as a borrowing expense when the loan is used to buy an income-producing investment. That means a rental property, not your own home. The ATO treats Lenders Mortgage Insurance (LMI) as a borrowing expense. These expenses can be deductible if the property earns assessable income. Rather than deducting it in a single year, the cost is spread evenly across 5 years. For example, lets say you paid $20,000 in Lenders Mortgage Insurance, this amount can be claimed at $4,000 per annum over the next five financial years.
Why Lenders Mortgage Insurance Matters for Investors
Many property investors overlook LMI as a deduction or simply forget to tell their accountant. This is costly. Be sure that your accountant includes LMI in your tax return can maximise your tax position and free up cash flow
Other Borrowing Expenses You May Claim
Lenders Mortgage Insurance is not the only eligible tax deduction. You may also claim loan establishment fees, title and mortgage registration fees, and certain mortgage document costs.
Key Considerations
- Lenders Mortgage Insurance is not deductable if the loan is your principal place of residence.
- Lenders Mortgage Insurance cannot be claimed all at once, in one tax return. It is spread over 5 years.
- Remember to speak to your accountant or a qualified tax adviser as the ATO’s rules are subject and ensures compliance.
- Remember to keep meticulous records of loan documents including loan offer, loan contract showing LMI amount, settlement statement and Lenders Mortgage Insurance payment receipts to support your claim. Additionally, a schedule showcasing the five-year allocation, as the ATO will expect records.
LMI as Part of Investment Strategy
While nobody enjoys paying Lenders Mortgage Insurance, it can sometimes make financial sense. For instance, saving a 20% deposit would take years, paying LMI allows investors to enter the property market sooner. In a rapidly increasing property market, entering the market earlier, the potential capital gains could outweigh the cost of the insurance expense.
Failing to claim this deduction means missing out on a legitimate way to reduce your taxable income. Given that property investment is already a high-cost strategy, maximising every available deduction is essential.
Broader Borrowing Expenses You Can Claim
In addition to LMI, property investors may also be able to claim:
- Loan application or establishment fees.
- Title and mortgage registration fees.
- Costs of preparing and filing mortgage documents.
- Mortgage broker fees (if directly related to the loan).
When combined, these expenses can represent a substantial deduction over several years, making a real difference to your after-tax returns.
A Word from Acctivate
Lenders Mortgage Insurance is often seen as a frustrating expense. But if you’re buying an investment property, it doesn’t have to be all bad news. You can usually claim LMI as a borrowing cost and spread the deduction over five years. That helps trim your taxable income a little each year and, over time, nudges your overall return in the right direction. It’s not a loophole—just smart housekeeping with a cost you’re already paying.
If you’ve recently purchased an investment property with less than a 20% deposit, check your loan documents and speak to your accountant. Making sure this deduction is included in your return could save you thousands of dollars.
Remember: every investor’s situation is different, and tax laws can change. Always seek advice from a qualified tax professional to ensure you’re claiming correctly and maximising the benefits available to you.
Key Takeaways for Business Owners and Investors
- LMI is deductible only for investment properties, not your home
- Treat LMI as a borrowing expense and spread it over time.
- Keep strong records and avoid guesswork at tax time.
- Consider LMI within your bigger wealth plan.