Updated October 2026, 2026 tax changes: from 1 July 2027, negative gearing for residential property is generally limited to eligible new builds (later buyers of that dwelling can't access it), and the 50% capital gains tax discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax on gains. Properties held at 7:30pm (AEST) on 12 May 2026 keep their existing negative gearing treatment, and the changes to capital gains tax apply only to gains that accrue after 1 July 2027; investors in new builds can choose the 50% discount or the new rules. Both changes are now law; see the ATO. This is general information only; speak to a registered tax agent about your situation.
It has always been challenging to save enough money for a deposit to purchase a property. Despite generations of Australians having to skip the countless movie and dinner dates, borrow money from family and friends, or choose scrambled eggs on toast for breakfast at their parents’ house instead of smashed avo at the neighbourhood café.
Even if that goal is met, ongoing mortgage payments remain to be considered.
Saving for a deposit gets harder as the cost of living rises. One way first home buyers and investors reduce the deposit needed to purchase a home or an investment property is by using lenders mortgage insurance (LMI). Property investment calculators can help you assess the financial impact of lenders mortgage insurance.
What is Lenders’ Mortgage Insurance (LMI)?
LMI, also known as Lenders Mortgage Insurance, is insurance that a lender takes out to protect them from the risk of not covering the outstanding loan balance if the borrower can’t meet the loan payments and the property is sold for less.
How is this different from Mortgage Protection Insurance?
Mortgage Protection Insurance is designed to protect borrowers and their ability to repay their mortgages in the event of death, sickness, disability, injury, or unemployment that could impact their ability to pay their mortgage successfully.
How does lender’s mortgage insurance work?
Now that we’ve defined what LMI is, let’s break down how it works!
The threshold for LMI varies between all banks and financial institution. Those who borrow more than 80% of their property’s purchase price will usually pay lenders’ mortgage insurance (Some banks don’t charge this until 90%).
If you do not have the required home loan deposit, which is typically 20% of the property value, the lender will typically require LMI, and the cost will likely be charged to you (the borrower) as a fee, and gets added to your loan. The price is based on the amount of the deposit you have saved. A more affordable LMI will be obtained with a larger deposit. On the other side, a lower deposit will mean a higher LMI
Paying for LMI can mean you are able to purchase a property sooner, at an extra cost.
What Are the Benefits of Lenders’ Mortgage Insurance for Homeowners?
Having less than a 20% deposit allows many homeowners to enter the real estate market sooner, with the help of LMI. It enables owners to obtain a mortgage with a deposit of as little as 5% of the purchase price if the lender is satisfied with their income and prospects for repayment. This significantly streamlines first-time buyers’ entry into the market by cutting down on the time needed to save for a significant down payment.
An important consideration for first-time home buyers is that when using lender’s mortgage insurance to get into the property market quicker, you’ll need to borrow a little more. It can usually be added to your loan rather than paid upfront, which increases the amount you owe.
What Are the Benefits of Lenders’ Mortgage Insurance for Investors?
Lenders mortgage insurance permits a lower deposit requirement, allowing investment properties to be bought with a higher loan to value ratio (LVR). A higher LVR also means a larger loan and higher repayments.
For investors, LMI is a borrowing cost. Borrowing costs over $100 are generally deducted over five years, or over the term of the loan if that is shorter.
What are negative gearing and leverage?
If you are thinking about investing, you may have heard the terms “negative gearing” and “leverage.”
What is negative gearing?
In simple terms, negative gearing is when an investment property’s expenses (including interest, maintenance, insurance, strata, council rates, and depreciation) are bigger than the income made on the property (rent or rental income). That is, more money is going out per year than is coming in.
What is leveraging?
In investing, the phrase “leveraging” simply refers to borrowing to increase the potential return of an investment. For example taking out a mortgage to buy a home is a form of leverage.
Who can claim mortgage insurance on a tax return?
Investors can claim lenders mortgage insurance as a tax-deductible under borrowing costs. These are the borrowing expenses you might incur when obtaining a loan to purchase a property. Some borrowing costs include:
- Loan establishment fees
- Lender’s mortgage insurance (insurance taken out by the lender and billed to you)
- Title search fees are charged by your lender.
- Costs for preparing and filing mortgage documents (including solicitors’ fees)
- Mortgage broker fees
- Valuation fees
The tenant’s maintenance and upkeep expenses, e.g. pest control, cleaning, gardening, water, gas, and electricity, cannot be claimed.
How do I claim a tax deduction?
Investors generally deduct eligible borrowing costs over five years, or over the term of the loan if that is shorter. If the total deductible borrowing expenses are $100 or less, they are fully deductible in the income year you incur them.
Can I still claim LMIs on tax if I sell my property?
If an investor sells their investment property and repays the loan before the five-year period ends, any undeducted balance of the borrowing costs, including LMI, is generally deductible in the year the loan is repaid. A registered tax agent can confirm how this applies to you.
What is Capital gains tax (CGT)
Capital Gains Tax is based on the difference between the selling price and the purchase price, which can include the sum paid for the property plus legal fees, stamp duty, and other upfront costs, as well as the value of any capital improvements (renovations) that were completed by you.
How is Capital gains tax calculated?
CGT generally does not apply to your main residence, but it can apply to a property you have used to produce income, like an investment property.
When selling a property, take the selling price minus the asset’s original cost and related costs to calculate how much capital gains tax you’ll have to pay (like legal fees, stamp duty, etc.). Your capital gain is the balance (or loss).
Should I use LMI when purchasing a first home or an investment property?
Seek advice from a registered tax agent and a broker before deciding whether paying for LMI suits you. Adding LMI to the loan amount means you don’t have to find the funds right away, but you pay interest on it, and for investors the premium is a borrowing cost deducted over five years (or the loan term if shorter).
Using a property buying cost calculator can help you estimate upfront costs.
First Home Buyer Scheme that don’t require LMI
The Australian Government 5% Deposit Scheme (formerly the First Home Loan Deposit Scheme and the Home Guarantee Scheme), run by Housing Australia, lets eligible first home buyers purchase with a deposit as low as 5% without paying Lenders Mortgage Insurance (LMI). Eligibility rules and property price caps apply; check Housing Australia for current details.
Property investment calculators can help you estimate these costs. A registered tax agent can confirm which lenders mortgage insurance and other borrowing costs are deductible in your situation.
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