Why did they suggest this? What benefit do you have in giving up $10k in funds and refinancing?
20%, 10% or 5% Deposit?
- Thread starter Michael_X
- Start date
Why did they suggest this? What benefit do you have in giving up $10k in funds and refinancing?
I will give the broker the benefit of the doubt - perhaps there is a policy reason for the switch that meet your longer terms objectives. If not then Aaron put it well in the above comment.
Wouldn't it depend on your tax sitch?
From a theoretical point of view, the simple answer seems like if you'd like to buy more than one property, go 5%+LMI and leverage through hell and high water.
If you could afford it, it would seem logical to avoid LMI, take the 20% deposit option, make life easy in terms of refinancing, give yourself a little breathing room etc. It might give you some positive cashflow depending on what sort of property you are buying though, so It probably depends on your personal sitch
d
From a theoretical point of view, the simple answer seems like if you'd like to buy more than one property, go 5%+LMI and leverage through hell and high water.
If you could afford it, it would seem logical to avoid LMI, take the 20% deposit option, make life easy in terms of refinancing, give yourself a little breathing room etc. It might give you some positive cashflow depending on what sort of property you are buying though, so It probably depends on your personal sitch
d
No not really. See you have x amount of equity to play with and your strategy is to purchase a few properties or even one property and develop it. So do you use all your deposit/equity and bring the LVR to 80% or do you go to 95% and have more deposit to "play" and the LMI is tax deductible for the first 5 years? If the property is around the $250k-$300k mark - I would go for the latter.
In terms of refinancing - if you got it right the first time you shouldn't have the need to refinance the loan to another bank. Even at 95% you can drop it to 80% for the refinance if need be since you have the equity available.
Not really. The thing is that most people have LOW deposit relative to their incomes. This means that the only thing that limits them from buying property is equity, not servicing. Hence why high LVRs at early stages in the acquisition cycle is better as you are able to buy more before you run out of deposits/equity.
Now, some people avoid LMI like the plague for various reasons. While many of my clients pay LMI, I personally have not. This doesn't mean I don't like LMI - the thing is that the properties I buy tend not to be eligible for LMI either due to the type of security or the loan amount. If I was buying something a bit smaller/suitable, however, I would not hesitate to use it. It depends on the individual.
