80% LVR lend v LMI lend for first IP

I think Terry is suggesting that if you structure your loans incorrectly, you might be missing out of about $10k/year in tax refunds or deductions. This isn't really about how much stamp duty/LMI/deposit you put down, instead it's about how you structure your lending to access funds for those purposes.

 

thanks for the reply peter,
In the example I have assumed an IO IP loan, and tried to calculate the tax advantage(or not) of an 95lvr loan over a 80 lvr loan.

 

If you structure your lending correctly, the LVR doesn't make any difference to how much you receiving in tax deductions. The real difference between an 80% loan and a 95% loan, is the LMI you pay.

Properly structured, many people can achieve tax deductions on the full purchase price of the property as well as the purchase costs. Effectively 105% of the property value.

This assumes you've got equity in another property, if it's your first property, then presumably you're using cash for the deposits and there wouldn't be any tax deductions on the cash you put in.

Also keep in mind that in the current environment, borrowing 95% against an IP is incredibly difficult. There are lenders who say they'll do it, but practically speaking investors need to assume that 90% is the most they'll be able to borrow against and investment property. People may want to prepare themselves for 80% lending becoming the norm in the near future.

 

Looks like I made a mistake with the maths - pretty big one. $100k x 5% = $5k. So $5k per year in lost deductions.

Same principles apply, but the effect is not as great.

 

But we were talking about 20% deposit I think so that is where I got the $10k from I think