Lenders Mortgage Insurance

Hi everyone.

I have a LMI question for someone with more experience in the area:

Basically, once you use LMI on one property to leverage maximum funds for more deposits, is your entire portfolio then stuck with that lender or else you will be paying LMI again with the new lender who you want to refinance with down the track?

Our situation is:

We have two properties in a remote town that I think only Commonwealth and NAB will now touch. Our current loan is through Westpac but they will not lend more than 70% in this town.

We are looking at purchasing atleast 2 IP's in the Goldy and Brisbane area valued at $270k each plus costs.

I was hoping to refinance the existing IP's with Commbank to 92% including LMI (I have pre approval for this) giving us approx $160k for deposits and then purchase the 2 other IP's at 80% to avoid LMI.

My broker is saying I can do this but the entire portfolio will then be stuck with Commbank because no one else will refinance our remote properties. He is saying this is fine though as Commbank are a great bank and I should stay with them to acquire all our properties (10 - 15 IP's) anyway.

It was always my belief that throughout the acquisition stage I would be best switching lenders here and there to whoever best suits my strategy at that stage.

I should mention that my Mortgage Broker is abroad atm and I am getting advice from his colleague.

Can someone shed some light on this for me?

Thanks!

Nath

 

Heya,

Ok so unpacking it a bit and some thoughts:

1. Because you have a couple properties with CBA/NAB early in your portfolio it doesn't mean that you have to be there for your entire IP journey. This is the case regardless of your remote properties.

2. In fact, switching lenders is an effective and important tool brokers use to grow/stretch portfolios further. CBA will assess debt that you hold with them harsher than debt you hold elsewhere. As a result, after a couple IP's, you'll quickly find you may be able to borrow more by switching lenders.

3. There's the issue of concentration risk of having all your loans together.

4. Good work on getting a 92% cash out with CBA, its getting tricky to do. If your pre-approval was for a purchase of a new place, it doesn't necessarily transfer over to an equity release situation seamlessly. Usually there's questions about what you'll do with the funds during an equity release. These questions don't get asked when purchasing.

5. If you're looking to build a 10-15 property portfolio, you may even want to stretch your 160k further by purchasing with LMI too. Its a powerful tool to grow a portfolio. For example, you can close to 1.5-double the value of assets working for you. Adding a % growth factor of a larger base may get you where you want to go faster (10-15 IPs). LMI may also not be available to you down the track as your portfolio grows. Its easier to get it now.

Cheers,
Redom

 

2. In fact, switching lenders is an effective and important tool brokers use to grow/stretch portfolios further. CBA will assess debt that you hold with them harsher than debt you hold elsewhere. As a result, after a couple IP's, you'll quickly find you may be able to borrow more by switching lenders.

Thanks for your reply Redom, great to see the same crowd coming across from Somersoft! I was only new to Somersoft so I was devastated when I heard it was closing down.

Yes switching lenders throughout the journey is something I thought necessary. But what my broker is saying is, if I switch to CBA (from Westpac) and take out LMI on my two existing IP's costing $28500 I will then have $162k for deposits. But down the track when I need to switch to, lets say, ANZ because they will lend more I will face two issues. 1: ANZ will not lend to the 92% taking over the mortgage for the remote IP's and;
2: even if they did take it over I would have to pay for the LMI all over again for ANZ costing another $28500 and wasting the original fee...

For this reason possibly I am better waiting till the strata is complete and re valued and then borrow on the remote IP's to 80% giving me approx $124000 for deposits on new IP's. Then borrow for those properties using LMI to 92%. I should be able purchase two $270k IP's with this and the LMI should only cost approx $5000.

How does this sound?

Thanks

Nath

 

hmmm....doesn't sound good.....or feasible.

Your borrowing capacity would have to be amazing and you'd need to have a very good friend at Genworth.

Cheers

Jamie