Downsides of LMI

[NeilJohnston]

Hey everyone

I'm planning to buy my first investment property with a 15% deposit, as a 20% deposit wasn't going to leave me with enough cash for a renovation.

Now I'm thinking maybe I should go for a 10% deposit to allow me to afford a more expensive property.

Apart from the extra cost of the insurance itself, what are the drawbacks of doing this? I gather it can limit me when trying to borrow more for additional properties down the line, but I don't really understand how this works.

Would appreciate some advice.

Thanks all,

Neil

 

[D.T.]

The main downside in my opinion is cost. Not only the upfront one, but also upon refinancing. You can't take the loan to another bank whilst still high LVR without paying for it all over again.

In saying that, its definitely worth it. It allows you to buy sooner and/or more frequently.

 

[starter]

The major downside that I've found is that it limits your ability to refinance away from that lender if situation/their policies change.

It also makes the finance approval process much more complicated than if LMI wasn't involved.

 

[Aaron_C]

As starter said it sort of 'locks you in' with the lender you go with which can be annoying if things change and you no longer fit their policy.

 

[Richard Feynman]

On the up-side, if you borrow 90%, you can refinance to 90% with the same lender without paying LMI all over again.

 

[Aaron_C]

On the up-side, if you borrow 90%, you can refinance to 90% with the same lender without paying LMI all over again.

Yes but what if you don't qualify for that loan increase later?

 

[Richard Feynman]

Then no loan increase for you!

 

[Colin Rice]

LMI is a leveraging tool that allows you to purchase more property for very little out of pocket expense if you break it down to a weekly interest payment.

The major downside as already mentioned is moving lenders and getting whacked again so important to choose the right lenders if you need to use this tool.

 

[tobe]

On the up-side, if you borrow 90%, you can refinance to 90% with the same lender without paying LMI all over again.

You still pay it, just on the increased amount, rather than the whole amount (which you would be liable for with a new lenders money).