Margin Loans LMI and it’s side effects

Discussion in 'Sharemarket Investing Platforms, Tools & Services' started by Bonzo, 10th Jul, 2019.

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  1. Bonzo

    Bonzo Member

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    Hey everyone,

    Just had a quick question regarding lending.

    When you take up LMI it is hard to refinance and take out equity later down the road if after two years you have enough equity built in the property.

    For example,

    Property price $300,000
    You put $30,000 deposit
    You pay $8,990 on stamp duty
    You pay $4,012 on lenders mortgage insurance

    Total loan = $283,002 (stamp duty and LMI included in the loan)

    Let’s say After 2 years your valuation for the property came to $400,000

    Equity growth

    ($400,000 - $300,000) = $100,000

    How willing are banks in releasing the equity if you refinance the loan to 80% LVR

    80% of $ 400,000 = $320,000 (Refinanced loan with the bank)

    Available equity release

    $320,000 - $283, 002 (old loan) = $36,998

    Do bank still see the burrower as a high risk client after the equity growth.

    Is LMI like a mark on your credit report where no matter where you go everyone knows you took LMI for your purchase and regard you as a high risk client.

    Any feedback would be highly appreciated

    Thanks
     
  2. Brady

    Brady Well-Known Member

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    Not sure why this is labelled margin loan, can't see any margin loan.

    Banks are usually pretty willing to lend money as long as adequate security being <80% or potentially up to 95% inc LMI.
    And as long as you have the capacity to repay the loan.

    LMI has no impact on your credit file.

    Other banks don't care if you have paid LMI before, they potentially should as in most cases best you stay where you paid the LMI

    Because in cases of borrowing again with same bank, same loan/property if going over 80% again you could receive credits for LMI already paid.


    Ask for a fact sheet on what LMI
     
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  3. Bonzo

    Bonzo Member

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    Thanks for the reply Brady.

    I didn’t know about margin loans. Sorry for categorising my thread incorrectly. Just learned about it.
     
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  4. Lindsay_W

    Lindsay_W Well-Known Member

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    LMI doesn't make you a high risk client like having a bad credit file does.
    As long as the LVR is within limits and serviceability passes then banks don't care that you had LMI previously, especially if you're refinancing your loan to 80% LVR based on the growth in the property value.
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Cash out can be dicky with LVRs > 80 %, at larger amounts

    Our record is 2500 k at 90 % ......... :) but that was a no LMI medico deal

    ta
    rolf
     
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  6. Bonzo

    Bonzo Member

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    Thanks for the reply
     
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  7. Bonzo

    Bonzo Member

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    Thanks for the reply
     
  8. Jeremy86

    Jeremy86 Member

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    Question Kinda related to this thread,

    Say Once you take out equity loan against property 1 to purchase property 2, I understand that equity loan forms part of the total loan for property 2.

    The Equity loan was taken to 80% LVR of property 1.

    Once property 2 is purchased, what stops you from (soon after) just repeating the same equity loan against property 1 to 80%?
    Serviceability aside, just from point of view of LVR. Same situation, With no increase in property 1 val.

    Cheers
     
  9. Terry_w

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

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    The loan would be secured against property 1 but interest deductible against property 2.
    You couldn't keep borrowing against 1 unless increase in value or the loan is being paid down
     
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  10. Jeremy86

    Jeremy86 Member

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    Does this securitisation against property 1 remain in place even after refinancing and switching lender?

    Eg After a refinance, the equity loan was fully amalgamated to the property 2 loan.
     
  11. Terry_w

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

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    A refinance would mean the mortgage is discharged. If the loan is still in place it might now be mortgaged against property 2 and this would free up property 1 to borrow further against.

    I think I have suggested this happen in this post
    Tax Tip 36: Consolidating Loans for investment properties Tax Tip 36: Consolidating Loans for investment properties
     
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  12. Jeremy86

    Jeremy86 Member

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    And @Terry_w

    What about ability for construction loans at LVR >80%, any issues with lenders if still staying <90%?

    And read somewhere LMI can be avoided if bringing LVR back to 80% by introducing a guarantor. Is this possible - to have a partial guarantor for just the additional ‘value’ needed for this side of the equation ?
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Plenty of lenders offer construction loans to 90%. They'll generally base the LVR on the completed value of the property.

    In the case of a family guarantee, a family member offers a property they own as additional security for the loan. The LVR is now calculated as a function of the combined value of the two properties, vs the combined value of all the loans against that property (the guarantor might have a loan against their property which need to be considered).

    There are some restrictions around this type of guarantee, for example most lenders only do this if the guarantor is an immediate family member. It also carries some risk for the guarantor. It can be a useful tool for getting into the market with a low deposit.
     
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  14. Brady

    Brady Well-Known Member

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    CBA wil do Construction @ 95% inc LMI for Owner Occupied.
     
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