LMI vs Savings

Discussion in 'Loans & Mortgage Brokers' started by Watson17, 14th Aug, 2017.

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  1. Watson17

    Watson17 Member

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    Hi Guys,

    Just wanted to post a quick question and get some advice and or pro's/con's.

    Would you recommend getting a loan without LMI and potentially have very little left in you savings once the property has settled, or take out a bigger loan with some LMI and have more in savings?

    Thanks,
     
  2. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    It really depends on what you are doing, is it an investment or owner occupied? What do you plan on doing in the future?

    Hopefully we can help with a bit more information :)
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    I'd pay lmi and have the cash buffer. There's always costs after buying a house and nothing worse than feeling stressed right off the bat.
     
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  4. Watson17

    Watson17 Member

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    Thanks guys.

    Will be a PPOR for a few years and potentially an IP after that.
    Would be looking to build a portfolio in the coming years (basically whenever cash allows).
    Hope this helps?
     
  5. Beelzebub

    Beelzebub Well-Known Member

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    If first house and PPOR I'd go without LMI and with little buffer.
     
  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    It really depends on a few things.

    How much savings would you have left if you put down a 20% deposit? Do you barely scrape through, or would you still have enough for a reasonable buffer or safety net?

    If you use LMI and retain an extra 10%, do you have the capacity to do anything further with it? If you've reached your borrowing capacity limits, keeping an extra 10% isn't going to get you into the next property any time soon. A cheaper 80% loan might allow you to save money faster than a 90% loan.


    Arguments for 90% lending when 80% is an option tend to be around keeping some for later and this is quite valid. However this needs to be considered in context to how much it actually needed for later or what can actually be done with it.
     
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  7. Tom Simpson

    Tom Simpson Well-Known Member

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    If it's between paying a few $k LMI and sleeping well with a large chunk of cash with your name on it...I've said it before, but how much is your sleep worth?
     
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  8. Watson17

    Watson17 Member

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    Hi Guys,
    Thankyou all for your responses. Very helpful.

    Initially I would probably only have $1-2k left but with the ability to save $1-1.5k per month.
    An 80% loan would be better because it means I can save quicker and less monthly repayments but it may cause some initial stress.
    In saying that if I sit down and plan a worst case budget and things are still workable then I think I'll do that.

    Thanks again guys
     
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Do you have income protection insurance ?

    ta
    rolf
     
  10. Watson17

    Watson17 Member

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    I don't currently.
    Is it something that you recommend?
     
  11. miximitosis

    miximitosis Well-Known Member

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    Can't advise for your specific case....but, if I was to only have $1-2k left left over @80% and plan on converting it into an investment in the future - I would be doing 90% inc LMI with the remaining cash in the offset account.

    It just depends on what your comfort level is.....85% + LMI may even be an option.
     
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  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Risk management strategy is always important.

    We have been around too long and seen the effects of poor risk management around income. We have had more than one client on longish term income protection insurance payouts that would've been in some serious trouble had them up had that capacity..

    If you're young non-smoker level premium fully underwritten policy is typically not expensive for somebody in an average risk profession
    thanks

    Rolf
     
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  13. L3ha7

    L3ha7 Well-Known Member

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    Can we claim the LMI for tax purposes?
     
  14. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I believe LMI is a capital expense, so you claim it against your capital gains tax when you sell.

    Best thing to do when you purchase a property is to keep good records, file everything and then pass it all onto your accountant. They'll be able to make sure you get every deduction you're entitled to at the right time.
     
  15. Terry_w

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

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    LMi is a borrowing expense
    I have 3 tax tips discussing in what circumstances it might be deductible
     
  16. L3ha7

    L3ha7 Well-Known Member

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    When I bought my 1st home in 2012, I did pay LMI to CBA and few years back we got new loans and I tried looking online what netbank doesn't show anything before 2016 so do you think bank will be able to provide me the details?

    From memory ut was around $7K with some small little initial loan expenses.

    Ps:property is under offer
     
  17. Terry_w

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

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    You didn't claim it at the time?
    It would have been recorded on the loan contracts.
     
  18. L3ha7

    L3ha7 Well-Known Member

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    Opened up old record folders and there it is all the expenses LMI, stamp duty, bank cheque fee charges, solicitor fee


    It was my 1st home so I don't think I have claimed as per my 2012/13 tax refund.

    Missing is building and pest report-I am sure I can find that
     
  19. Terry_w

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

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    If it was rented out the LMI could have been deductible over 60 months or 5 years. You may be able to claim some this year if still within the period and the property was rented out.

    Missed LMI could be claimed against CGT when sold so keep a record.
     
  20. L3ha7

    L3ha7 Well-Known Member

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    4th sep 2012 was the settlement date and prop was rented for 10 months since sep 2012.

    I will check with my accountant but as per the tax refund no info on it.

    You mean I won't be able to claim all?

    What about stamp duty and other small little bank charges (loan set up fee etc.)

    Also found the building report and it's invoice.
     

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