Hey guys, 2 Questions here re: finance. 1) Is it a good idea to have LMI on my equity loan with bank A and LMI on the Investment loan with bank B? I will need to access 90% of my available equity to get into the market and my bank has agreed to do this. I would rather pay the LMI than try and save for a few more years for a decent deposit. 2) If I have a buffer of $15k cash and 2 investment properties but no PPOR. Where should I put this 15k? In an offset account on one of the Investment loans? I know that I need to take advantage of the tax benefits of the interest I pay but wouldn't I still save me more to have any spare cash sitting in as offset? I know this is great to do with your PPOR because the interest in non deductible but if I do not have a PPOR I would like to see the 15k doing something! Thanks Greg
2 answers: 1. depends. see my tax tips for some potential issues: Tax Tip 33: Deductibility of LMI Tax Tip 33: Deductibility of LMI Tax Tip 34: Deductibility of LMI on loan increases Tax Tip 34: Deductibility of LMI on loan increases Tax Tip 35: Is LMI Deductible in These Situations? Tax Tip 35: Is LMI Deductible in These Situations? 2. in an offset account as you will still be saving money.
1. If you don't have enough equity or savings to avoid paying LMI, your only alternative is to wait until you do have it, or get a family member to give you a guarantee from their property. There isn't much alternative. 2. Unless you've got something better to do with any surplus money, the best place of it is either in an offset account, or redraw facility of the loan (depending on where that money came from). If the money will be from the equity release, leave it in the loan redraw facility used to implement the equity release. If the money is your own savings, put it into an offset account.
As it sits, at 80% Equity I can access $46,000 and have $30k saving also = $76k deposit. But I would rather use my savings as a buffer and a new motorbike! If I go upto 90% on the equity release and pay LMI I will have $68k of the banks money and only have to tip in a bit of my own cash.. I'd just rather have my own money aside if there are any problems with repairs, bad tenants etc to lower the risk
My wife won't let me get a bike but that's fair and I can't fault your numbers or logic here. I can't fault my wife's logic either (NO! And that's the end of the discussion). You probabaly already know this, but keep in mind that if you've paid LMI preivously, as long as you're with the same lender, you should only pay LMI on the top up, not on the full loan amount.
To add to the mix, you might consider parking unused funds in the offset account of the IP with the highest interest rate.
No good Pete, I couldn't imagine life without a bike! My bank did mention something along those lines that I already has LMI on the current loan. I'll make sure that nothing is diluted and the tax man clearly see's what's going on. Thanks mate!
I might not have a choice with my current lender as they do not offer an offset account. Redraw facility has a $50 fee each withdrawal
I mean if you had two offset accounts to choose from to park savings in, it would make sense to park it in the offset that is attached to the loan that has the higher mortgage interest rate.
Hey Jac, I'm with a local credit union for my current house loan. So not the greatest interest rate either.. I've never really considered changing banks as my loan is fairly small and they are pretty flexible. But now that I have an interest in investing I want to get my structures right.
Yep..was just clarifying that it was savings you were referring to and not borrowed funds to park in the offset.
Very good. Add to your knowledge. Historically you could only get offset accounts against variable rate loans, however some lenders now offer "partial offsets" against fixed-rate loans. Commonwealth Bank is one such example. Presently I believe money held in an offset saves (offsets) 1.5% mortgage interests. So it's always worth asking the question.
Yes I'm aware. I understand how it works. I was just making sure you were talking about SAVINGS as oppose to BORROWED funds. Which as we know can get messy if it's the latter.
How much LMI did you pay originally? If it wasn't much (you mentioned small loan) then the interest you could save with a different lender could offset the LMI credit you have with your credit union. Probably also best to find out how much the LMI adjustment would cost going to back to 90%.
I paid a couple of grand LMI on my last purchase. I dont usually but I only wanted to put down around 12% cash on this one. Its deductible so its just an expense of doing business really.
