88% LVR vs 90% LVR?

Discussion in 'Loans & Mortgage Brokers' started by Realist35, 23rd Dec, 2016.

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  1. Realist35

    Realist35 Well-Known Member

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    Hey guys,

    I'm looking at making a purchase early next year for around 580k. I am thinking whether to go for 88% or 90% LVR.

    I understand that 88% is considered a sweet spot. However 90% LVR will leave me with around 12k extra cash in my pocket, which is definitely not negligible.

    If my goal is to build a portfolio, would it make sense to go for 90% LVR and capitalize the LMI?

    According to an online calculator, I'd have to pay ~5k extra for LMI if I go for 90% LVR, which equates to only ~10$ pw extra.

    Cheers!
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    More banks to choose from at 88%

    LMI is cheaper

    Credit scoring is better

    Cheers

    Jamie
     
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  3. Realist35

    Realist35 Well-Known Member

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    Thanks Jamie.

    How does it impact the credit scoring?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Go 90% if you can get it.
     
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  5. Realist35

    Realist35 Well-Known Member

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    That was my gut feeling too.

    I guess I can have more cash that way, which can speed up my investment journey. Would that complicate the loan for my next IP though?
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Don't see how it could.

    Where the person has little deposit money and still has borrowing capacity it is best to preserve that deposit money (whether borrowed or cash) for the next purchase. $12k difference is a fair bit.

    LMI is deductible (where the loan is used to invest) and it may sound a lot now but in 20 years you will look back and think it insignificant.
     
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  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    There could even be a reason for an 86 % lend here.

    86 falls under 500 k, which will have a much lower premium than 522 = 90

    6700 LMI premium vs 14 500

    7800 premium increase for an extra 23 000

    If using someone like NAB, and one is singlish, male and living at home or doesnt have a decent well established balance sheet, the system scores +90 very harshly, and a strog change of a max 80% result,

    Choose your lender wisely if > 90

    ta
    rolf
     
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  8. Sonamic

    Sonamic Well-Known Member

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    What's to say that if you are buying for growth, that in 6 months or even a years time you get a Reval and your LVR comes in 80% or better, will you still be worried that you went to 90% at the start to preserve Depositing Funds?
     
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  9. Realist35

    Realist35 Well-Known Member

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    Ok, now I'm even more confused. The question should be "86% vs 88% vs 90%":)?
     
  10. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I can't prove this - but from experience it seems that 88% + LMI deals credit score on the banks automated scoring system better than 90% + LMI deals. This is particularly the case with NAB.
     
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  11. Realist35

    Realist35 Well-Known Member

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    Wouldn't it be the same if a person has more deposit money? Wouldn't it be always a good idea to keep that extra cash to grow your portfolio?
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It depends. There may be little point in incurring LMI on 2 loans, and leaving cash in the account, if you only qualify for 2 loans.
     
  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    th
    there is merit going for a higher LVR to hold back tax paid cash/savings for future investment since the leverage that many people rely on to build quickly.

    There is also merit in holding back cash for personal/investment buffer risk.............. for eg I continually have clients that are broke post settlement going for 80 % lends because to them it represents less risk to have loans at 80 % and no lmi.............. Typically id prefer them to pay the LMI to 88 % and hld back risk margin.

    the decisions are personal ones, whether its an 80 % lend or a 99 % LVR capped IP loan, these are risk profile questions.

    ta
    rolf
     
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  14. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    The 88%+LMI vs the 90% scenario is a bit redundant.

    Most lenders will only allow you to borrow up to 90% of the property value. 88%+LMI is essentially 90% anyway.

    The alternative is to lend 90% and pay the LMI out of your own pocket. At this point however the LMI premium is often more than 2% due to the base LVR.

    In either case you're still not going to be able to borrow more than 90%, so you might as well go for the option where it costs less in LMI.
     
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  15. Sonamic

    Sonamic Well-Known Member

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    Great post.

    This is where having a good relationship with your broker is vital. To strategically map your path with an eye toward the limits of your capacity. Even more so now. Like Terry said no point blowing wads on LMI starting out to try to get to 5 props if you only have serviceability for 2.
     
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