LMI - is it worth paying this?

I know we all say avoid LMI and only borrow 80%......but on second though, is it really that bad.

Afterall, LMI is tax deductible over 5 or so years and will get you in the market sooner.

Do you think it's the right time to use LMI or wait until you're certain that property prices increase further??
 
Skylynx,

it all depends on your current situation. I myself am in the IP accumulation phase, so for me it is OK to pay for LMI because I don't wanna wait until I have the full 20% deposit. The longer I have the property under my name (or the longer I am *in* the market), the better.

If I had plenty of properties, nope, I will use equity. But that's not my case :)

cheers
 
Do you think it's the right time to use LMI or wait until you're certain that property prices increase further??

I agree with aegcp
It depends on your situation and which market you are buying into.
Can you wait till you have a bigger deposit?
Will prices move up or down?
If I wanted to buy and the market was about to take off I'd happily pay LMI
because the price increases would probably be more than the LMI.
If you are going to buy in FHB areas don't wait any longer.
IMHO
 
Do any of the mortgage brokers know what the outside limits of the LMI system are ??
 
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I have never paid LMI

I'm surprised at that.

But I'm not sure whether higher LVR's with LMI are applicable to comm IP...

I've only ever purchased res IP at 95% LVR with the LMI being capitalised (so effectively 97% LVR)! :eek:
 
We had to pay it TWICE last year. First time when we bought the house (they decided we were over a 60% lend with no formal valuations) and second when we got a topup loan to renovate and they DID the formal valuations and again decided we were over 60%. It was like 62% both times on the same two houses but a bigger amount the second time, and had they done the formal valuations the first time we would have only paid it once. Grrrrrr.

On the upside, it was only $300 odd each time, but still ...
 
Hiya

As has already been said it does depend on a few things.

In many circumstances its very well worth the premium to move some of the risk off your own back and borrow at a higher LVR and retain cash.

ta
rolf
 
PHP:
Do any of the mortgage brokers know what the outside limits of the LMI system are ??

In relation to what, location, dollar amount ?
 
I know we all say avoid LMI and only borrow 80%......but on second though, is it really that bad.

Afterall, LMI is tax deductible over 5 or so years and will get you in the market sooner.

Do you think it's the right time to use LMI or wait until you're certain that property prices increase further??

I'm one of the proponents of avoiding it as much as you can.

There is nothing actually wrong with doing it; it will allow many to accelerate their acquisitions.

But to me; if the Bank won't lend you the money unless someone else gives them insurance for their risk, then what does this tell you?

It's a risk profile issue.

Me; I won't do it normally, because I'm risk averse. I have done it in the early days, but it was in a boom market and I had no choice if I wanted to buy, and was scared to death every day. No thanks.
 
Marc

But whose risk is it anyway ?

If you borrow 90 %, and place the 10 % in your offset, thats a nice risk mitigation strategy for not a whole lot of money

ta
rolf
 
Skylynx,

it all depends on your current situation. I myself am in the IP accumulation phase, so for me it is OK to pay for LMI because I don't wanna wait until I have the full 20% deposit. The longer I have the property under my name (or the longer I am *in* the market), the better.

If I had plenty of properties, nope, I will use equity. But that's not my case :)

cheers

I agree

I will be considering this option when planning to purchase my first ip. I am not afraid of gearing at 90 or 95% and paying the LMI. I think the important thing for me is to have my $20 K savings buffer in my bank and also having the ability to service the debt ok and that I have invested in a good asset. I would rather pay the LMI and be geared at a higher level than use my savings buffer as part of my deposit. I would be in trouble with no savings.

On my income im starting to see that I may have to look further out than inner city. I think I need to look at ips < $230 K.
 
Marc

But whose risk is it anyway ?

If you borrow 90 %, and place the 10 % in your offset, thats a nice risk mitigation strategy for not a whole lot of money

ta
rolf

The risk is always with the borrower.

Very few investors buy an IP with a significant pos cashflow from day one; certainly not enough to support them if they lose their job for some reason.

Unless the borrower is buying in a boom (and even then there is no guarantee), there is more risk attached to any borrowings of over 90% of the property value.

Why?

Because in this situation, the only reason the owner ever sells is if they have;
a) made a spectacularly quick cap gain
b) financial difficulties.

We are not in situation a) currently, and in situation b) it inevitably results in a sale of less than 90% of the properties value just to get it done in a hurry.

Having the 10% in the offest is definitely a better risk management though. At least with this strategy the seller might come out close to break-even.
 
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