Investment Property 90% Loan

I have $35,000 in Usable Equity in my PPOR without exceeding 80% LVR .
I also have $30,000 saved up in Cash in the same bank.I asked the Loan specialist about getting a Pre-Approval for $400,000 to buy an Investment property.
She had said earlier if i had to Refinance with them my PPOR then they could lend upto 90% for an Investment property.I also said that i did not want to cross collaterise or neither did i want to exceed 80% LVR in my PPOR.
PPOR Outstanding Mortgage=$337000
Bank Valuation=$465000

This is what she came back to me with.
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"I have $400,000 approved I have had to rearrange a bit as the LMI does not cover interest only loans. I have approved $320,000 stand alone on the XXXXXXXXXX property with interest rate as at today 3.99% – interest only – with repayments at approx. $245 per week. The rest was done against your owner occupied home with the LMI but had to be P & I repayments so would be $110 per week. Given a rental return of say $400 per week this is still below that figure. Can you let me know your thoughts and I will send you the AIP certificates. "
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Am going in on Monday to have a talk with her and need some feedback on how to avoid any cross collateral or exceeding LMI on PPOR .
Can I manage to get an IP loan with another bank who can lend upto 90% LVR and an interest only Loan.

 

Seems like she's having an equity top up on PPOR with LMI capitalised.

Which lender? Whichever lender, it doesn't allow IO repayments for over 80%

There are lenders which allow IO lending for over 80%...CBA and ANZ of the big 4, Bankwest and a few others.

You do need to look at pros and cons of both approaches. In some instances it may be ok to pay LMI if it significantly saves on LMI for the second deal. But sounds like you have sufficient funds for a 400k deal.

Just make sure you do it tax efficiently with the cash savings.

Recently had a client pay lmi on Owner Occ to save circa 7k in LMI on next deal.

 

The problem is that based on your initial parameters, your IP is going need a loan above 80%, hence there's LMI in here. You can leverage your home up to 80%, add your own cash, but you still don't quite have 20% and costs for a $400k IP.

Most lenders won't allow interest only above 80%, even for investment purposes. Most, but not all.

I also suspect that they way it's being structured, you're not going to get tax deductions on the $30k cash that you're contributing. Done properly, this should be recycled via the home loan as part of the process of releasing equity.

To get the optimal solution, without cross collaterlisation and with the full deductions available, you're not using the right lender. You'd almost certainly get a better outcome by using an investment savvy broker who can be more strategic about lender selection.

 

Consider the deductibility of lmi. See my tax tips

 

Hi Terry,Very interesting and what i was looking at.Thanks for the excellent thread.In my case
House Value=$465000
Loan A(outstanding)=$337000
Loan B(Usable equity)Interest only=$35,000 ,This can be used for deposit etc.
Cash Savings=$30000.

In my case i have to also use my cash savings as the IP im looking at is around the $400000 mark.
All the above are with Bank A.Plan is to go for my Investment loan to Bank B.Just had a chat with CBA and they can do 90% but that will also include LMI.

What is the best way to use my cash?

 

Thanks for your input Peter.Trying to figure how to structure the $30K .Will be seeing a broker for the same .

 

Thanks for the tip.CBA can do 90% but that includes LMI.Im with Westpac currently and they don't go above 80% LVR.Talked to them today and they said they made a mistake (conveniently it was their team, not the branch) when they had said earlier they could go to 90%.

 

Seek specific tax advice but it would generally result in bigger tax deductions for you to borrow as much as you can against the investment property so you incur LMI there and try to incur as little LMI as possible on the main residence secured loan.

 

Just a Thought,What if I used some of my cash to pay down my PPOR and the borrowed a bit more on my Interest only Equity loan which will form the basis of my 10% deposit for the IP purchase.
Will the Interest payments be Completely tax deductible.
The balance 90% will be a seperate IP interest only loan which will be deductible anyways

Am I on the right track.Will run it by my accountant anyways.

 

yes that would work if done right. LMI would only be incurred on the new investment loan so should be deductible in full and the interest on both loans deductible