LMI Question

Hi All ,

I just settled about a week ago on a block of land and was having a look at the settlement sheet and saw lmi was charged as a lump sump straight out on settlement. I would of rather preferred that lmi payment to be on added to the loan. I am assuming my broker didn't arrange that lmi be added to the loan hence why it was paid on settlement or can you not add lmi to settlement on vacant block of land? And if you can I assume its too late now to change that now anyway?

Second question is is more related to tax. From what I know you are able to claim the costs of lmi as a tax reduction but this purchase is going to my primary place of residence for 6 months then be a investment as I need to live in the premise to obtain the fhog. Since I will be living in the property for the first 6 months will I still be able to claim the lmi costs?

And lastly since I have already paid lmi on the block of land and will pay it again on the construction of my new home if I plan to withdraw equity at 90% for a additional purchase of another investment property or will I have to pay the full amount of lmi cost again or will be lower since I already paid lmi previously.

Thanks
 
Hi All ,

I just settled about a week ago on a block of land and was having a look at the settlement sheet and saw lmi was charged as a lump sump straight out on settlement. I would of rather preferred that lmi payment to be on added to the loan. I am assuming my broker didn't arrange that lmi be added to the loan hence why it was paid on settlement or can you not add lmi to settlement on vacant block of land? And if you can I assume its too late now to change that now anyway?

toolate to change. did u ask the broker to "capitalise" ( add) the lmi to the loan ? Note a few lenders wont allow it anywau

Second question is is more related to tax. From what I know you are able to claim the costs of lmi as a tax reduction but this purchase is going to my primary place of residence for 6 months then be a investment as I need to live in the premise to obtain the fhog. Since I will be living in the property for the first 6 months will I still be able to claim the lmi costs?

your tax adviser would be the best trustworthy advice. My experience says that LMI is a borrow cost and is "depreciable" over 5 years. Hence if your PPOR becomes an ip at say end of year 1, then 4 years of "depreciation" of the LMI premium is possible.

And lastly since I have already paid lmi on the block of land and will pay it again on the construction of my new home if I plan to withdraw equity at 90% for a additional purchase of another investment property or will I have to pay the full amount of lmi cost again or will be lower since I already paid lmi previously.

Thanks

You will usually get a credit for the lmi already paid

ta
rolf
 
toolate to change. did u ask the broker to "capitalize" ( add) the lmi to the loan ? Note a few lenders wont allow it anywau



your tax adviser would be the best trustworthy advice. My experience says that LMI is a borrow cost and is "depreciable" over 5 years. Hence if your PPOR becomes an ip at say end of year 1, then 4 years of "depreciation" of the LMI premium is possible.



You will usually get a credit for the lmi already paid

ta
rolf


Thanks Rolf

Just few more questions. I am banking with CBA are they one of the lenders that can capitalize the lmi cost to the loan for vacant land? Will they capitalize the lmi costs for construction as well?

And from you experience the lmi costs is still tax deductible over the years the property is a investment even if the lmi costs are paid in full?

Thanks
 
CBA will cap lmi BUT


there may be "sweet spot" lmi cost, or credit scoring, or rate pricing reasons why it wasnt done.

generally we stick with 88+ lmi for most lenders IF thats in aggreeance with the borrower.

LMI even if paif in full is still only deductible over 5 years........... but seek specific and personal advice pls, dont accept stuff on a forum as gospel

I german and male, so often wrong, but never in doubt !

ta
rolf
 
Whats the lVR?

Normally if it's 90% LVR , you may not want to cap the LMI on top as the rate will be a bit more. So hence we always do 88% + LMI- so in most cases we would advise our clients to cap the LMI but reduce the base LVR. CBA allows this as well.

But as ROLF mentioned, too late now- but you can still do this for your construction loan later.


LMi can be claimed over 5 years, prorated for any years/month it's an IP.

The construction loan will have a new LMI if you are going to 90, but the LMI is discounted based on the LMI already paid ( ie credit); however if your land has gone up in value this will reduce your LVR and LMI.

Cheers
 
Yes LMI deductible over 5 years - 20% per year. In the first 6 months you cannot deduct it but thereafter could if it was a rental. doesn't matter if you paid in cash or borrowed it, same deductibility from a tax pov
 
The construction loan will have a new LMI if you are going to 90, but the LMI is discounted based on the LMI already paid ( ie credit); however if your land has gone up in value this will reduce your LVR and LMI.

Cheers

Conversley if you are building in Many parts of greenfields Melbourne, we have had TBE vals "reduce" the overall land content...... in some cases to the point where building was not within the clients resources anymore

ta
rolf
 
Just on the first question. Lmi is payable at settlement as a lump sum regardless of whether capitalised or not. Just look at the total loan amount and deduct the lmi paid and this is your "base loan" amount, this is the amount that went towards the purchase itself. Also usually if the loan amount is an odd number then chances are the lmi has been capitalised.
 
Loan details are as follows

Loan Structuring:

Base Loan Split - $232,509

Loan Split 1 - $239,000 (inclusive of $6,491 of LMI)

Product/ Package Name: MAV $350k - $499k (>90% LVR)

Interest Rate: 5.30% - Lending Discount Applicable is: 0.6%

Loan Type: Variable

Offset account: Yes

Interest Only Repayment

I/O Period: 5 Years

Term 30 years


The lvr is above 90% I am not sure the exact percentage tho. I am first home buyer so does that 15k add to the cost base of the loan to lower the loan amount?

Valuation of the land had come back to what I have purchased the block the cost price for my block and house will be around 480 - 490 with landscaping etc. Their are no homes in the area for under 550k I know that wont represent in the banks vaulataions but will the overall price after construction be taken into account to minimize the lvr?
 
If you give us the purchase price you can work out the LVR. If its $246,000, you already have the maximum allowed by that lender, 97%.
 
Back
Top