Lenders Mortgage Insurance

Definition

Lenders Mortgage Insurance is a one-off premium charged by lenders when a borrower's Loan-to-Value Ratio (LVR) exceeds 80% — meaning the deposit is less than 20%. LMI protects the lender (not the borrower) if the borrower defaults and the property sale doesn't cover the outstanding loan. The premium is based on the loan amount and LVR, and can range from a few thousand to tens of thousands of dollars.

LMI is a cost many first-time investors overlook. Importantly, for investment properties, the LMI premium can be claimed as a tax deduction — but it must be spread over five years or the loan term (whichever is shorter), not claimed upfront in one year.

You borrow $480,000 on a $550,000 investment property (87% LVR). The LMI premium is $9,800. You can claim $1,960/year as a tax deduction over 5 years.

ITAA 1997, Section 8-1

Related terms

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