Investing in property involves various expenses, including stamp duty and lenders mortgage insurance (LMI). These costs can have a significant impact on property investors, so it’s essential to comprehend the distinctions between them and their effect on finances.
Stamp duty is a government tax on the transfer of property ownership. The amount payable differs by region in Australia and is calculated as a percentage of the property’s value. Unfortunately, stamp duty isn’t tax-deductible, and the funds must be paid upfront and can’t be added to the loan amount.
On the other hand, LMI is an insurance policy that safeguards the lender when the borrower defaults on their loan. LMI is typically required by lenders when the borrower cannot provide a deposit of at least 20% of the property’s value. One of the significant benefits of LMI is that it allows buyers to purchase a property with a smaller deposit. Moreover, LMI is tax-deductible, and it can be added to the loan amount.
When it comes to total costs, stamp duty and LMI differ significantly. Stamp duty is a tax that must be paid upfront and cannot be added to the loan amount, while LMI is an insurance policy that can be claimed as a deduction on tax and can be added to the loan.
Consequently, property investors need to budget for these costs when investing in property.
One way to reduce the stamp duty payable is to become a property developer. If you buy land and construct a property on it, your stamp duty will only be payable on the land’s total cost, which can be significantly lower than the property’s total value. However, property development requires careful planning and execution, and investors must consider factors such as location, market demand, design, and construction costs.
To conclude, investing in property can be a profitable way to secure your financial future. However, property investors must consider all the costs involved, including stamp duty and LMI. By understanding the differences between them, seeking professional advice, and doing thorough research, property investors can make informed decisions and avoid unnecessary expenses, potentially saving tens of thousands of dollars.