Avoiding LMI - can I do this?

[grubar30]

Hi all,

Could one of the mortgage brokers please help me out with some advice as I’m in a bit of a pickle with my bank.

Quick synopsis – I currently own 2 units. Property # 1 valued at 200k (mortgage = 104k) and property # 2 valued at 250k (mortgage = 240k). Both mortgages are with NAB and both properties act as security for the other and for themselves (does that make sense? Cross-collateralised?).

This puts my current LVR at 76%.

Last week I signed a contract for property # 3 at $209k, for which I’m wanting to borrow 100%, plus ~8k stamp duty and $6k for renovation. This brings the total I wish to borrow to $223k.

With the addition of this new property, I would have a total market value of $649k for all 3 properties and a total debt of $567K.

Hence, my new LVR would be 87%. As a result, I’d cop a huge Lenders Mortgage Insurance bill to the tune of ~9k (btw, NAB mentioned something about all 3 properties having to incur the LMI – confused!).

I’ve pleaded with NAB to either show some flexibility and waive the LMI or alternatively, re-value my properties in the hope they have gone up in value (thus improve my LVR). Their response was a resounding “NO” to the LMI request. They also said “NO” to the re-evaluation, as both properties have already been re-valued in the last 8 months and it goes against their policy to re-value twice within a 12-month period…so basically I’m stuck, either default on the contract or accept the LMI fee.

I really don’t want to lose this property but at the same time feel the LMI fee is dead and wasted money….

This is what I’m thinking – borrow from another bank for property # 3 and use property # 1 (i.e. $200k) as security….that is, refinance property # 1 with the new bank so I can use its equity. In essence, I’d be borrowing the aforementioned $223k for property # 3 and $104k for property # 1 – to pay off what still owes with NAB.

My question is this - will NAB allow me to do this if the loans are cross-collateralised? Also, how will this impact the LVR on property # 2….it’s going to sky-rocket as a result of the lost equity on property # 1 …will this be looked upon unfavourably by NAB?

Regards
George “confused and looking for a way to make this happen” Grubar

 

[Rolf Latham]

Hiya George

Rolf Ls number one suggestion

LMI is an opportunity cost, use it while you can get it.


Rolf Ls number two suggestion. You have allowed the NAB to paint you into a corner. They are very very very good at that. You are paying an LMI premium over 3 ips because they would be cross collateralised.

Id be looking to tell em to go away and do a 90 % lend on all 3 properties

That is 180 on property # 1, and 216 on property # 2. That means after costs you should have 60 k or so left.

You could then do a 90 or 95 % purchase on the new place either of which gives some cash left over, with the 95 % option providing another possible purchase or buffer in reserve.

Its time to sit with an independent broker, someone that want you to succeed, obviously bank staff are generally paid a salary, whether they help you succeed or not, a broker doesnt eat if they dont

ta
rolf

 

[Qlds007]

I am with Rolf.

I have a client in the West in exactly the same position with the NAB.

She has decided that to avoid the LMI at over $500K (arm and a leg) she will refinance one of her loans to another lender and as Rolf suggest borrow 90/95% and pay for only what she needs.

In her situation we are taking the loan upto 95% and sitting the suplus cash in an offset account so when she needs to run again she has the deposits ready to roll.

There are big differences in LMI premiums between lenders and therefore get your broker to ensure that he shops around not only for the best product for you but also the most competitive LMI rate.

Remember all MI has the same benefits to you the borrower = Absolutely none.

 

[duncan_m]

LMI is an opportunity cost, use it while you can get it.

Kudos to Rolf.. I completely agree, I avoided LMI like the plague when I started borrowing.. smugly putting down 20% deposits.. BIG BIG mistake..

 

[grubar30]

Hey guys,

Thanks for the replies.

I ended getting in contact with Rolf today....he's not only going to find a way out of my situation but will create a financial structure that will allow me to grow....I'm very happy and thankful to Rolf....in fact, he provided more guidance and knowledge in a few hours than my existing mortgage broker (btw, voted # 1 in QLD by Ray White - yeah right!), NAB and Homeside Lending have in the last two weeks.

Cheers to Rolf....and as ever - Somersoft.


George "enjoying a glass of Sav Blanc" Grubar