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Paying LMI twice

Discussion in 'Property Finance' started by 70seven, 2nd Sep, 2015.

  1. 70seven

    70seven Member

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    Hi guys, I am new to this forum and would like to ask the smart people here if anyone has ever payed LMI twice? For example if i buy an IP at 85% LVR, renovate and refinance at 90% LVR. Has anyone done this or is it better to put a 20% deposit down and refinance to 90% and pay LMI once.
     
  2. tobe

    tobe Well-Known Member

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    I have paid LMI twice. Once when I purchased at 95%, then again when I refinanced. Well worth it IMO.
    Your example of not paying LMI initially, then paying it later wont save you any money. The LMI providers get the same premium whichever way you do it.
     
  3. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Happens all the time - if you plan your lending strategically it can result in a minimal cost. Topups will have the previous amount credited into the equation, so you can potentially release funds with only paying a couple hundred $ in LMI.

    The alternative is that you can make a purchase at 90% LVR, then continually take out equity rises as lower LVR's, aiming to keep the new LMI vs previous LMI paid as $0.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    It's not uncommon at all.

    Agree with Corey - aim to purchase at a higher LVR rather than relying on an equity release at a high LVR in the future.

    Cheers

    Jamie
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If you don't shift lenders when going from 85% to 90%, you'd only pay LMI on the difference in premiums between 85% and 90% LVR. This is likely to be a fairly modest amount. If you move lenders, you'd pay the LMI premium again in full. The difference will be massive.

    In the current lending environment, going from an 80% lend to 90% is getting very tough. There's certainly lenders that will do it, but quite a few won't. It's getting fairly difficult to reliably release equity above 80%.

    It's almost at the point where the best practice would be to purchase at 90% LVR to save your cash. As the property value increases, only release equity to 80%.
     
  6. Redom

    Redom Mortgage Broker Business Member

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    Yes, sometimes it can work for you. For example, you may be with ANZ and they value your property at 500k. You then get a 600k val from somewhere else. Switching over may actually help you get to your goals as a result of a significant val difference. The LMI cost may be worth the extra equity.

    In saying that, its getting pretty hard to release equity at 90 anyway.

    Agree - IMO given the large uncertainty and possibility for change, it makes sense to take the money when its available to you.
     
  7. 70seven

    70seven Member

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    Thanks for the speedy reply guys. I didn't realize this was very common. I was planning to save a 20% deposit but I may just go ahead with a 90% LVR and release equity later at 80% as you said Peter_Tersteeg.:)
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    In the interests of putting it all out there, this strategy isn't without it's flaws...

    The 90% purchase is quite achievable at the moment. No big deal, most lenders are able to accommodate it. Buying at 90% LVR also keeps more of your cash in your pocket (possibly another deposit).

    If you then wait until the LVR drops to 80%, this might take a couple of years. Even when it's at 80% it's only at the break even point. It's got to go well below 80% before you've got enough equity to justify the release.

    Probably the best way to go about it is to try to put the loan with a lender that has favourable policies for a 90% equity release in the future, but it needs to be understood that those policies may change in the future which might set you back to the 80% scenario. Unfortunately there's a lot of changes happening and there could be a lot more to come, so there needs to be a willingness to change strategies at the moment.
     
    mcarthur likes this.