Mortgage Insurance

[smiffy]

Hello Everyone,

We are turning our PPOR into a investment property and purchasing a house to live in. Our mortgage provider is stating we need 19K to add to the purchase however its cheaper for us to contribute mortgage insurance.

Wouldnt this insurance be a tax reduction?

What you think?

Thanks
Erica

 

[Peter_Tersteeg]

LMI can be written of. I think it's a capital cost.

 

[josko]

Hi Erica,

The LMI is only a Capital Deduction if it is incurred against your IP. Therefore, if your LMI is a premium against your new PPOR loan, it will not be a deduction.

Check with your accountant.

Regards JO

 

[Peter_Tersteeg]

Josko's right, I missed that small detail.

If the LMI is incurred for the purpose of buying your own home, it's not tax deductible. It is deductible if you buy an new IP with the money.

It doesn't matter which property the loan is secured by which determines the deductibility, it's the purpose of the funds which determines deductibility.

 

[dr.jauncey]

Hi, yes, any expense is only deductible if incurred in deriving income. This expense is incurred in buying a private home for yourself and therefore cannot be claimed.

When relating to an investment property or other income-producing asset, borrowing costs such as mortgage insurance, establishment fees, banks' legal costs, etc will be claimed in a straight-line method over the course of the loan or five years, whichever is less. Note that this is on a proportional basis from the date of settlement and so the deduction will usually span six financial years.

 

[jrc77]

Our mortgage provider is stating we need 19K to add to the purchase however its cheaper for us to contribute mortgage insurance.

I'd also point out that although you might have a lesser cash requirement now to have LMI (LMI v putting in extra $19k) the LMI is basically money lost to you - it doesn't go to reduce your loan or acquire an asset (remember LMI protects the lender - not you). If you put in the extra $19k you have a bigger hit now, but the amount you owe is reduced on your loan.

Regards,

Jason