IP to PPoR - lots of fun

I think we got confused here with combined, cross collaterallised and contaminated?
It would be amazing if my broker magically appeared

 

Unfortunately as per the original post, the current loan doesn't have an offset facility.

 

As far as the bank is concerned, we got a valuation, changed banks, and used the equity for whatevs. They don't know we used the equity for a deposit on another property really.

 

Do you have more cash than the size of the deposit loan? If not then it doesn't immediately matter.

 

That doesn't change anything.

 

This all sounds rather promising.
Thanks for the replies.

 

Of course. Maybe I haven't explained it properly.
I'll sleep on it and try again.

 

No I meant switch your product.

Seeing as current lender doesn't have an offset facility available (don't worry you're not alone in this ), best bet is switch to a decent lender with the highest Valuation on the house you're converting to home so as to minimise the amount of extra personal cash you have to tip in to get down to 80%. Unless of course you can find a worthy lender still doing 85% LMI free? The LMI you have already paid in this case becomes the sacrificial lamb in the refi, but you'll easily "make" this back in interest savings once you deposit stacks of cash into the offset.

Or as others have alluded to, refinance before you move into it whilst it's still an IP then the LMI lost becomes a deduction.

Corrections to follow.

 

Thanks for clarifying, that's what we're hoping, to change lenders. Got a decent valuation with CBA.
So in theory we'll need to add the other 8% on top of the original 12% deposit to get it to 20%? There's probably a better way for me to word that.

Yep, that's what we figured, even if we lost the remaining, will be worthwhile in the long run.
Bonus that we might be able to deduct the LMI if we change before we move in.

Now just need to get my head around this equity from the other IP that we used as a deposit for this one...

 

No - I think you don't get the basics.

Imagine this

You purchased the property. property B, for $500,000 and paid a 10% deposit borrowed from Bank A secured by property A.

You funded the remainder from Bank B with a loan of $450,000. Secured by property B. This is a 90% loan based on the purchase price.

6 months later you want to change lenders for the $450,000 loan.

You don't have to pay any more deposit and chip in any more money. The $450,000 would simply be a refinance.

You may have to pay down the loan to avoid LMI. But this will depend on what the new lender values it at.

Before the loan was 90% LVR because 450/500 = 90%

Now the value may have increased. If the value was now $562,500 the LVR would be 80% and no LMI payable.

But if it was a lower valuation you may have to pay down the loan to get it to 80%.

Say it comes in at $520k = $450/$520 = 86% LVR.Therefore LMI would be payable.

80% of $520,000 is $416,000 so to avoid having to pay LMI again you would need to reduce the loan to $416,000.

Alternatively your other property, Property A, may have increased in value and you could borrow against that.

 

I think I get the basics, we might be talking about the same thing, but me in dumb dumb language.
Originally we paid 12% deposit. One way or another if we're to avoid LMI we need to get that to 20% on the new loan. I termed it adding to the deposit, you say paying down the loan. Almost the same thing?

 

Completely different!

You can call an apple an orange if you like, but people won't understand what you are talking about.

 

I guess that's the problem, I understand by doing, not everyday someone goes IP to PPoR. Plenty of info on PPoR to IP, not much the other way.
So to really dumb it down, regardless of the terminology, we need to top it up to 80% LVR to avoid LMI again.
To me what you've said sounds like getting the loan, and then paying money on it to get to that.
But surely it means paying the money up front?

 

It is simple:

The loan must be 80% LVR or less when you refinance or you will pay LMI.

To get the LVR to 80% you have 2 choices
a) Rely on the increase in value,
and/or
b) pay the loan down.

 

So a) we need to get a valuation by the current lender, or will decent valuation with CBA do it?
b) with current lender before it changes over to CBA?

 

Think it through. Its just logic at this stage.

 

What's that saying, "If you can't explain it simply, you don't understand it well enough."
I can't explain it to someone yet, but I'm getting there.

 

Its common sense.

a) You seem to want to refinance. When refinancing who will value your security property? The incoming mortgagee or the outgoing?

b) if you don't reduce the LVR now before refinancing your LVR will be over 80%. What happens if you take a loan that is more than 80%?