Trying to understand LMI vs Guarantor

Hi all, hoping someone can clear this up, I'm missing something here surely,

On an 800 k PPOR purchase,

Scenario 1- 95% LVR (Capping in entry costs)

800k
100k down
Entry costs 52k (stamp + LMI)
LVR 94%
Loan Balance 752k (800-100+52)


Scenario 2- Guarantor the difference to 80% LVR

800k
100k down
Guarantor cover 82k (60k to hit 80% LVR and 22 k if inc stamp fees)
LVR 80%
Loan Balance 782k (Loan A 700 k , Loan B 82k)

In Scenario 2 the loan balance is higher than going in at 95% LVR, surely not right. Does the guarantor loan actually get paid back like this or is it just notional?

If its a notional figure, is the loan balance instead 700 k with 60 k 'securitised' and once the loan balance is paid down to 640 k its 'released'?

Thanks.

 

The loan amount would be less with a guarantor as you would be avoiding the lmi

 

So start balance in this case 700 k and release on security at 640 k?

 

It depends on how much you borrow and values. You could borrow 100% and release at 80%

 

Is the LVR taken at face value when he loan was created or is it re-assessed down the road?

 

It depends how you structure it, broadly there are 2 ways
a) one big loan.
When you want to remove the guarantor the main security property would need to be valued again and the guarantor's property could be released if the LVR is 80% or less

b) 2 loans
A secured by your property
B secured by the guarantor's property
With this structure you could pay down loan B as quick as you can and once it is gone so is the guarantee when the mortgage is discharged over their property. So no valuation would be needed.

 

Actually this may not be correct - loan B would generally be cross collateralised with your property and the guarantors property

 

Thanks, I think I get it now. Does that essentially means the 2 loans option wouldn't be a problem if prices fell and the value of the purchase slid?

 

As long as the Loan A is not secured by the guarantors property falling prices shouldn't be an issue.