90% or 95% LVR?

Discussion in 'Property Finance' started by munchiezzz, 3rd Apr, 2010.

  1. munchiezzz

    munchiezzz Member

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    Hi all

    My post is on a similar topic to one yesterday, but I didn't want to hijack the thread. I am a first time investor. I have just made a purchase of $330k and I need to decide on my loan details. This is my very first property, i.e. I do not own a PPOR.

    I am undecided about how much to borrow. I can afford a 90% LVR and even 85% if I take money out of shares, but one of the investor broker is advising me to borrow 95% to maximise exposure. The LMI for 90% is $4500 and for 95% is $10000. Another broker recommends me to go with 90% now and can always change it to 95% at a later stage when needed, just pay the difference in LMI.

    Can anyone give me more insight about changing LVR after the loan has been set up? How easy is it?

    I am aiming for an offset account where I let all the remainder spare cash to sit, until I buy the next, so the cash flow would be quite similar for all scenarios.

    Thanks in advance!
     
  2. Rob Williams

    Rob Williams Festina Lente

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    We all have different risk profiles and objectives.
    I wouldn't be going any higher that 90%. The upcoming rate rises will only hurt more at 95% compared with 90%. Also that higher LMI would sting a little, for my money,
    I've never gone higher than 80% and I let the growth reduce my LVR to around 70%. Some say I'm too conservative. Others say I'm too aggressive and wait for the day when I come unstuck so they can be "right".
    Only you can know what is the right LVR for you.
     
  3. Rolf Latham

    Rolf Latham Member

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    HIya

    the only thing that I can comment on is that the chance of a 95 % top up or refi in the near future is very very unclear.

    tarolf
     
  4. Jamie M

    Jamie M Mortgage Broker - Oz Wide

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    From my experience, it's generally straight forward to top up a loan to 90% LVR. However, I doubt any of the lenders I'm with would approve a 95% LVR top up. There's usually a timeframe for applying for a top up as well - some lenders may not revalue the property for 6 months (unless renovations are carried out and you can argue that value has been added to the property).

    I'm not sure what your financial situation is (or the type of property that you're purchasing) but it's generally more difficult getting a 95% loan over the line as opposed to a 90% loan.

    Cheers,

    Jamie
     
  5. Rixter

    Rixter $uper Investor (Retired)

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    Im the same as you Rob.....never gone above 80% LVR but borrow the full purchase price plus costs.
     
  6. bcoombs

    bcoombs Real Estate Agent

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    The chances of changing to 95% lvr afterwards are slim to nil. However if your buying style is similar to Robs, you could be less conservative and keep at 90% via growth.
     
  7. Bigtone

    Bigtone Member

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    Rixter as you know it becomes easier to borrow at 80% when you have other property and can borrow the 26% against another property and 80% against the new one.

    In this case munchie does not have any other property.

    Rob I say going 90% and putting in all cash is a bigger risk in terms of rental vacancies and i/rate rises than lending 95% and keeping cash in offset. How can it sting more when the loan balance is in effect the same? If you NEED the extra cash later bank probably won't give it so take it upfront and park in offset. Also means Munchie is closer already to his next purchase;)

    I say go 95% when you can and as your portfolio grows slowly reduce it. In reality you have nothing much to protect upfront but as it grows then buy at 90% then 80% and eventually even 60%.

    my overpriced two cents:)
     
  8. alexlee

    alexlee Member

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    What's the difference in LMI between 90% and 95% LVR? That has to be taken into account as well.
     
  9. munchiezzz

    munchiezzz Member

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    Thanks tarolf and bcoombs. This is what I suspected and thus I will be more inclined to apply for 95% now rather than attempt to top up to 95% later.


    Thanks Bigtone, i think this is exactly what I shall do. As my job security is looking good for at least the next 2 years and my property purchases will be close to positive cash flow, I am comfortable to start at a high LVR for the first two. I will then reduce leverage when I have more assets to protect and be in a different personal situation.

    Thanks all. I am glad I have finally got my head around this and now will just have to worry about the bank valuation and final loan approval! ;)
     
  10. Bigtone

    Bigtone Member

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    good luck munchie,

    the way the market is going u will be at 90% by settlement anyway!
     
  11. reeco

    reeco Member

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    Alot. for a 350 I.O LMI capped loan

    6366 90%
    15500 95%

    Thats at those amounts tho. Inbetween dunno.

    You dont even wanna know what is like at 500
     
  12. alexlee

    alexlee Member

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    So by going up to 95% and get an extra 17,500, you have to pay an extra 9,000.

    Depends on how important that 8k is, I guess.
     
  13. Bigtone

    Bigtone Member

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    From munchies first post.

    "The LMI for 90% is $4500 and for 95% is $10000"

    that $10k would be capped so 95% plus lmi so in reality paying $5500 to keep back $16.5k which is half the deposit for the next one and a buffer beforehand.

    so it means u can buy 3 properties at 95% with the same cash as 2 at 90%, if the growth on the 3rd outweighs the extra costs on 1 and 2 then u r on a winner!

    i was i could have bought at 95% portfolio would be double the size now.

    comes down to personal choice so it doesn't matter what i think really anyway.
     
  14. VYBerlinaV8

    VYBerlinaV8 Member

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    Nowadays I buy at 100%, and manage the risks inherent in cross-collateralisation.

    For my first property, though, I'd be more inclined to put up more cash in order to give myself some wiggle room going forward.
     
  15. Jamie M

    Jamie M Mortgage Broker - Oz Wide

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    I'd be inclined to follow the path mentioned by Big Tone - use as much of the banks money as possible and place my own cash in an off-set.....I then have cash on stand-by if needed.
     
  16. MCS_80

    MCS_80 Member

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    How do you do this?

    If you borrow the "full purchase price" PLUS costs, then wouldnt your LVR be over 100%? Im confused (As always) :confused:

    Cheers

    Mick
     
  17. Rixter

    Rixter $uper Investor (Retired)

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    Mick I borrow 80% (secured against the new purchase) of the purchase price and then borrow the remaining 20% deposit + 5% costs (from my investment LOC) secured against another property.

    Does this help?
     
  18. MCS_80

    MCS_80 Member

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    This does help Rick :D

    On paper you are only borrowing 80% of the value with lender A, and they are none the wiser to where you get your 20% deposit from. Is this correct?

    Cheers

    Mick
     
  19. WinstonWolfe

    WinstonWolfe Richard Werner fan

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    Many suggest borrowing more with LMI now in case LVRs tighten in future, and putting that portion of private capital into an offset.

    However, I have always struggled with two potential issues with this, and would be interested in MB's views.

    - LMI is used to borrow more now in case LVRs tighten later. However, I suspect banks, to varying degrees, take into consideration a borrower's overall LVR......in which case, they would lend less in the future to an applicant who applies with a 95% lvr versus 90%.

    - LMI is usually added to the loan amount (capitalized), which raises one's total LVR on future applications. i.e. in reeco's data:
    90% lvr attracts 6366 lmi, increasing overall lvr to 96.7%
    95% lvr attracts 15,500 lmi, increasing overall lvr to 99.2%
    The extra debt of LMI itself, must reduce future borrowings by at least that amount.
     
  20. Rixter

    Rixter $uper Investor (Retired)

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    Correct Mick. :)

    On a side note, Capital & Debt are 2 sides of the same coin. For example lets say you borrow the 80% from bank A and draw down the 20% deposit + 5% costs from a LOC you have with bank B. Bank A views your deposit as 'your capital' where as Bank B views the same funds as 'your debt'. Weird isnt it. Its all OPM but what its called all depends one's perspective.

    Hope this helps.