Next PPOR - 80% or 88% lend?

Silly question... Wondering which one would be better... :-/

Let say 80% lend ~ $400,000
88% lend ~ 440,000 plus LMI $6500
On land + build
We plan to stay long enough to recoup some growth. It is within 1.5km to station, and within walking distance (<1km) to potential new station if it gets build.

Thinking of buying another investment property end of 2018 and probably that's about it for a while.

I have fund to cover the 80% and some good amount to put into offset, so it kinda makes sense to keep it without $6500 LMI, however it also means no immediate access to approx. $40k which kinda be useful for the interstate moving, especially after lower valuation vs. cost :-/

What would you choose and what will be your consideration?

 

Do you plan on turning it into an IP in the future?

If not, you would generally do 80%. If you needed money for investing (assuming you can service the debt) in the future you could borrow the extra 8% and then the debt may be tax deductible.

Generally when you have an IP and a PPOR with a loan against it, you don't want to use cash for investment. You are normally better off paying the cash to the PPOR loan and borrowing it back to invest.

Obviously get personal advice as I can't take your entire situation into account.

Hope that helps

 

If it makes sense I would ... But at this point it is overcapitalised and I'm not sure it will be a good IP in the future, from being be pretty new house and low maintenance I don't feel like it will be my final house either, so either IP or sell

 

If you might turn it into an IP in the future, you might want to consider using an interest only loan with an offset account. Then when you move out and turn it into an IP the loan will be larger and you can use the money from the offset to reduce the new non-deductible debt from your next PPOR.

 

@Simon Moore that kinda the plan. I'm contemplating if paying LMI of $6000 worth it to have approx. additional $40k of liquidity now though

 

If it's only temporary, you could look at a credit card with an interest-free period on purchases to avoid the extra $6,000, assuming you can pay it back once the interest-free period is up! Just a thought

 

Think about deductibility of the LMI.
If you borrow to fund an owner occupied house and incur LMI it won't be deductible.

If you borrow to invest and incur LMI for an investment property it may be deductible - in part.

 

Benefits of 80% lend: Easier approval, not paying LMI, lower interest rates.
Benefits of 90% lend: Preserve more capital for the next purchase.

You need to ask yourself what's next. Is this the only purchase you plan on making for several years? Do you have the ability to borrow more after this purchase? What's more important, the cost of the loan or the ability to have capital for another future purchase?

If you're able or intending to purchase again the near future, paying the LMI for the 90% scenario might be more appropriate. If you can't or don't expect to purchase again, there's not much point in paying those costs.

 

Just a question to the brokers out there, could you do the 80% lend now then borrow the difference to make the loan 95% Inc LMI, then have that new loan deductable for an IP?

 

It's a relative thing; for most folks $6500 is a lot of money; but then folks spend way more on cars which are worthless in a few years.

If that sum is not (to you) a largish sum, and if it makes the whole interstate move that much easier and comfortable - and will eventually be swallowed up in the rising value of the PPoR, then go the extra and access that $40k

 

Thanks guys!

My ability to purchase/ borrow more will really depends on the job i (and hubby) can get in the new state... though with our current income, another purchase is definetely possible. Plan wise, maybe a $400k IP in 2 years depending how fast i can rebuild my buffer, then maybe another PPOR in 5-10 years depending when I have recoup the capital from this one.

The $6500 is a fair sum and was definetely worth it when our valuation werr 40k below (another val is just 17k below now)
Kinda want both access without the LMI... don't we all

 

Yup. What's the point in having cake if you can't eat it!

 

No.

You could increase your loan from 80% to 90% later on, but not 95%.

The second question is a tax question not a broker question, but the LMI may be deductible in part:

Tax Tip 33: Deductibility of LMI Tax Tip 33: Deductibility of LMI

Tax Tip 34: Deductibility of LMI on loan increases Tax Tip 34: Deductibility of LMI on loan increases

Tax Tip 35: Is LMI Deductible in These Situations? Tax Tip 35: Is LMI Deductible in These Situations?

 

To look at it and droll.
There might be flooring update happening soon for one of the IP (tenant is playing games, so I won't know the what will happen until approx. several more weeks). Might need to go 88% :-\

 

Hmm, If I increase it later for investment, would the LMI fully deductible? i.e. from no LMY (on 80% lend) and now $6500 to access more fund for investment.

 

Maybe not:

Tax Tip 33: Deductibility of LMI Tax Tip 33: Deductibility of LMI

Tax Tip 34: Deductibility of LMI on loan increases Tax Tip 34: Deductibility of LMI on loan increases

Tax Tip 35: Is LMI Deductible in These Situations? Tax Tip 35: Is LMI Deductible in These Situations?