To refinance or not (when LMI is involved)

Hi all,

Just a quick questions around the pros and cons of refinancing if I have paid LMI. My original loan is P&I, had a starting LVR of 89.99% and is for my PPoR. Within the next 12 months I will be buying a new property and keeping this as an investment property. I am wanting to refinance my loan so that I can change it over to IO. however to my knowledge this will mean that if I ever want to borrow above 80% again I will have to pay the full LMI premium.

My question is, is it worth not refinancing so that I have the option to borrow above 80% again without having to pay the full premium or am I better off refinancing to IO as the money I would save on reduced repayments would far outweigh the potential premium saving?

Looking forward to hearing your input,
Nick

 

Consider the ability to claim the residual value of the LMI as a tax deduction, but bringing the loan to an end.

 

When I turn this to investment it will be nearly 4 years after the initial purchase, this would mean I could only claim around 1 fifth of the LMI as it is spread over 5 year, correct?

 

Bugger! Yep

 

Hi Nick, which lender are you with? You might be able to go IO - and access equity now, if you want to - but it'll depend on your lender. If you lender only allows IO under 80% it may or may not require the loan to be rewritten. Just depends on your scenario and the lender involved.

 

Hi Jess,
I am with Newcastle Permanent and I only had a quick chat with the lending manager I went through and they said it is unlikely that they would change a PPoR loan from P&I to IO based on their appetite.
On a related question, if I was to go to a mortgage broker and they were able to get an IO loan but stay with the same bank would I maintain LMI carry over or would it be considered a new loan?

 

@Niche most lenders don't want to offer an IO loan for a PPOR. Some of the big banks will do it, but smaller lenders such as Newcastle Permanent tend to be more conservative and they'd want a very, very good reason to provide an IO loan on your home. Quite a few lenders have a simple policy of 'NO' on this topic.I doubt you'll get them to agree using a broker or not.

If you stay with an existing lender where you previously paid LMI, you'll get an LMI credit when you do an increase. The way this usually works is:
* They calculate the total LMI given the new loan amount.
* You pay the difference between what you previously paid and what you would for the increased loan.

In most cases this means you might pay hundreds of dollars, not the thousands you would if you move to a new lender.

 

Peter's answered your question re staying with the same lender, but if you're currently under 80% you might find you can cash out with a good valuation with a different lender, change to IO and remain under 80%...a favourable val can be like getting a no-LMI professional package deal at another bank

You will say good bye to the LMI premium you've paid, but if the val is good enough it probably doesn't matter - the result is the same (access to equity with no further LMI) - or actually, even better in that you're able to get your IO as well.

You'll also find that changing your loan to INV will give you better IO rates than you'll get as an OO loan.

 

Thank you @Jess Peletier and @Peter_Tersteeg.

From what you guys have said I am assuming there is no real point making a decision until I am ready to buy my next place. Then when I am at that point, look at the potential Capital growth that my current property has had and the savings I would gain from IO and compare which scenario suits me better at the time?
Also just a follow up question, if I was to engage with a mortgage broker to have a look at the value of my current property to see if there is enough equity to possibly already purchase, is that something a mortgage broker could do for free or is there a cost to me?

 

@Terry_w If I was to refinance my current loan when I move it across to an INV loan and had to pay LMI a second time could I claim that entire LMI?

 

If the loan related entirely to investment debt then the LMI would generally be deductible as a borrowing expense

 

Generally, this would be free. It's definitely worth getting a couple of vals done just to see where you're sitting with things.