IP1 Refinance - 20% deposit

[Azazel]

Hi guys, I had a similar question to JT87 in '80% LVR to 90% + 1 IP', thought about posting my question there but didn't want to hijack the thread and make it messy.

We bought IP1 with 20% deposit through St George, variable at 5.29%.
Really didn't know what we were doing, but bought at a good time luckily.
Unfortunately we just went on convenience/rate at the time, but we have been educating ourselves since.
Would like to know our options on moving to a 88-90% LVR loan - wherever the sweet spot is for LMI - and put the LMI amount onto the loan, either with St George or someone else?

We also bought IP2 with 20% deposit through UBank.
Would ideally like to do the same with this one, 88-90% LVR. Is there any flexibility there?

Any advice greatly appreciated.

 

[Mick C]

1. Keep LVR under 88% ( preferably 84%) + LMI cost on top
2. For cash out St George >80% will ask a lot of questions + their LMI is a touch higher than most as it's westpac internal LMI
3. Before you embark on this LMi path...make sure you plan your 3-5 years goal and 3-5 years "purchases" out....really no point paying LMi if you can't actually afford to service a 3rd/4th loan etc...
4. Plan. Every situation is different.

Cheers

 

[Redom]

Hi guys, I had a similar question to JT87 in '80% LVR to 90% + 1 IP', thought about posting my question there but didn't want to hijack the thread and make it messy.

We bought IP1 with 20% deposit through St George, variable at 5.29%.
Really didn't know what we were doing, but bought at a good time luckily.
Unfortunately we just went on convenience/rate at the time, but we have been educating ourselves since.
Would like to know our options on moving to a 88-90% LVR loan - wherever the sweet spot is for LMI - and put the LMI amount onto the loan, either with St George or someone else?

We also bought IP2 with 20% deposit through UBank.
Would ideally like to do the same with this one, 88-90% LVR. Is there any flexibility there?

Any advice greatly appreciated.

Heya,

Should be possible - but you MAY have to evidence why you need the funds depending on the lender and the amount your withdrawing. By evidence, a COS for your next purchase, renovation quotes, etc (depending on why you want the money).

If you've bought at 80% lends, you've got the luxury of ordering a few valuations from a couple different suitable lenders for each property. Note that some lenders are unlikely to let you cash out at those LVRs as part of their policy. Once you've got the valuations back, move to a suitable lender that gives you a strong valuation. Of possible, try to get a mix (modelled, kerbside, full) - as brokers are noticing large variations across valuation types for the same place.

On another note, you should be able to pick up the phone and call St George to reduce your rate. Brokers here can do it for you too.

88% is the sweet spot for LMI, much much easier to cash out <90% too (<85% even better!).

Cheers,
Redom

 

[Jamie M]

Hiya

Is the loan currently variable or fixed?

STG can be a bit painful with high LVR equity releases at present. They may want to control the funds if you haven't located a property.

If you have found a property you want to purchase - that should be a sufficent "purpose" for them to release the equity but they will want to see that the end debt (your current loan, equity release and new IP loan) will all service with them (even if you don't take out the third loan with them) and they're servicing calc isn't that generous.

If sticking with STG - order an upfront val before submitting an application.

88% will usually be quite a bit less LMI than 90% - all comes down to how much equity you need and the value of the property.

Cheers

Jamie

 

[Azazel]

Heya,
Should be possible - but you MAY have to evidence why you need the funds depending on the lender and the amount your withdrawing. By evidence, a COS for your next purchase, renovation quotes, etc (depending on why you want the money).
If you've bought at 80% lends, you've got the luxury of ordering a few valuations from a couple different suitable lenders for each property. Note that some lenders are unlikely to let you cash out at those LVRs as part of their policy. Once you've got the valuations back, move to a suitable lender that gives you a strong valuation. Of possible, try to get a mix (modelled, kerbside, full) - as brokers are noticing large variations across valuation types for the same place.
On another note, you should be able to pick up the phone and call St George to reduce your rate. Brokers here can do it for you too.
88% is the sweet spot for LMI, much much easier to cash out <90% too (<85% even better!).
Cheers,
Redom

Thanks for the reply Redom.
I've spoken to St George on the phone a few times, they wouldn't reduce the rate. It's supposed to be variable, but hasn't gone down.
Not feeling any loyalty towards them, quite happy to refinance with someone else if it's more flexible.

 

[Redom]

Eek, ok. Best to begin by stating out:

1. What are you goals with the money your going to take out. A broker will then test whether you can achieve your end result in terms of borrowing power and which lenders you can go to.

2. Order a few valuations from different suitable lenders. Plenty of lenders DONT suit a high LVR cash out.

3. Then go from there.

Keep in mind your longer term considerations while going through the process too.

To achieve what you want, as Jamie mentioned, sticking with St George may actually be difficult (servicing calculator/controlling funds) beyond the obvious rate consideration.

Cheers,
Redom

 

[Jamie M]

Thanks for the reply Redom.
I've spoken to St George on the phone a few times, they wouldn't reduce the rate. It's supposed to be variable, but hasn't gone down.
Not feeling any loyalty towards them, quite happy to refinance with someone else if it's more flexible.

What's the loan amount? Must be sub $250k if they're not moving....

Cheers

Jamie

 

[Azazel]

Eek, ok. Best to begin by stating out:
1. What are you goals with the money your going to take out. A broker will then test whether you can achieve your end result in terms of borrowing power and which lenders you can go to.
2. Order a few valuations from different suitable lenders. Plenty of lenders DONT suit a high LVR cash out.
3. Then go from there.
Keep in mind your longer term considerations while going through the process too.
To achieve what you want, as Jamie mentioned, sticking with St George may actually be difficult (servicing calculator/controlling funds) beyond the obvious rate consideration.
Cheers,
Redom

1. Buy IP3. In an ideal world, would refinance/restructure to get back some of both deposits and try to fund IP3 AND IP4. But still not sure how it all works

2. We do have equity in IP1, just a matter of getting a realistic valuation.

3. Partner started a new job about a month ago (3 month probation) so would like to have our stuff all sorted and ready to go in 2 months time.

 

[Redom]

1. Buy IP3. In an ideal world, would refinance/restructure to get back some of both deposits and try to fund IP3 AND IP4. But still not sure how it all works

2. We do have equity in IP1, just a matter of getting a realistic valuation.

3. Partner started a new job about a month ago (3 month probation) so would like to have our stuff all sorted and ready to go in 2 months time.

Ok.

So that's a pretty clear enough goal to run a few finance scenarios.

What you'll need to do is test your serviceability and see who you can cash out with. It will be more difficult to do this with St George than lets say ANZ (who have a more lenient cash out policy). Its worth picking out a couple lenders - so as to make sure you get the 'realistic valuations'. I'm getting 10%+ variations on the same security consistently, so it can make a large difference to your ability to purchase IP4 and IP5.

Part of this process should involve a plan to see how far you can get too. If you want to get to 5 IPs over the next period, its about mapping out a path for how you can get there. Given rates are low, plenty of banks assess debt at actual repayments, its likely to be possible so long as your borrowing power is strong enough (income/expense profile is healthy).

The new job MAY limit lender choice, but can be worked around.

Cheers,
Redom

 

[Kinnon Bell]

You're lucky in the sense that you have not paid LMI on either of your IP's currently so have the luxury of shopping around for favourable val's and rates if St George don't come up with the goods.

If you did want to go into LMI territory with existing IP's then that would help you 'recoup' some of the cash funds you have put into the deals already which you could use to leverage into future purchases.

Some banks don't care about probation period (particularly if it's the same industry as before) but you will have more options after probation ends.

 

[Azazel]

Ok.
So that's a pretty clear enough goal to run a few finance scenarios.
What you'll need to do is test your serviceability and see who you can cash out with. It will be more difficult to do this with St George than lets say ANZ (who have a more lenient cash out policy). Its worth picking out a couple lenders - so as to make sure you get the 'realistic valuations'. I'm getting 10%+ variations on the same security consistently, so it can make a large difference to your ability to purchase IP4 and IP5.
Part of this process should involve a plan to see how far you can get too. If you want to get to 5 IPs over the next period, its about mapping out a path for how you can get there. Given rates are low, plenty of banks assess debt at actual repayments, its likely to be possible so long as your borrowing power is strong enough (income/expense profile is healthy).
The new job MAY limit lender choice, but can be worked around.
Cheers,
Redom

Sounds like a good plan. Do I pay for valuations with different lenders?
Planning is restricted by how much we have tied up in IP1 and 2 at the moment, but if we can get an approximate idea of how much we can get out to use on the next one(s) that would be really good. Would like to start planning further ahead. I mean we have a medium/long term goal, but would like to start filling in the big gap from here to there.

 

[Azazel]

What's the loan amount? Must be sub $250k if they're not moving....
Cheers
Jamie

Well spotted Jamie, IP1 loan is under $250k. We started small

 

[Azazel]

You're lucky in the sense that you have not paid LMI on either of your IP's currently so have the luxury of shopping around for favourable val's and rates if St George don't come up with the goods.
If you did want to go into LMI territory with existing IP's then that would help you 'recoup' some of the cash funds you have put into the deals already which you could use to leverage into future purchases.
Some banks don't care about probation period (particularly if it's the same industry as before) but you will have more options after probation ends.

No luck involved! No, there has been a bit of dumb luck along the way.
Ah that's right, if you pay LMI you're kinda stuck with that lender or it's wasted.
Yeah, trying to decide the best way to go, pay LMI and add it to the loan over 5 years or keep using 20% - or a combination with different purchases? Ugh. I always thought 20% deposit was the way to go, but it seems to make sense to free up as much money as you can since LMI is deductable.
Could speed up our 'accumulation phase' - ha, look at me and my fancy IP speak.

 

[Corey Batt]

No luck involved! No, there has been a bit of dumb luck along the way.
Ah that's right, if you pay LMI you're kinda stuck with that lender or it's wasted.
Yeah, trying to decide the best way to go, pay LMI and add it to the loan over 5 years or keep using 20% - or a combination with different purchases? Ugh. I always thought 20% deposit was the way to go, but it seems to make sense to free up as much money as you can since LMI is deductable.
Could speed up our 'accumulation phase' - ha, look at me and my fancy IP speak.

A very valueable and cheap lesson you have learnt here! Definitely during your accumulation phase it can be very prudent to use LMI as a tool to expand your portfolio faster and larger than you otherwise could achieve.

 

[Kinnon Bell]

No luck involved! No, there has been a bit of dumb luck along the way.
Ah that's right, if you pay LMI you're kinda stuck with that lender or it's wasted.
Yeah, trying to decide the best way to go, pay LMI and add it to the loan over 5 years or keep using 20% - or a combination with different purchases? Ugh. I always thought 20% deposit was the way to go, but it seems to make sense to free up as much money as you can since LMI is deductable.
Could speed up our 'accumulation phase' - ha, look at me and my fancy IP speak.

Ha, fair call!

Like you said, it very much depends on how aggressive you want to be during accumulation phase ( ) and what your tolerance to risk is.

LMI can feel a bit like a waste of money but you also need to weigh up the opportunity cost of not being in the market while you're saving more money for the deposit to keep the LVR <80%. In a rising market by getting in early you may have your LMI covered by any potential (paper) CG during that period.

Also, in answer to your question above about cost of val - it doesn't cost you anything.

 

[Redom]

Sounds like a good plan. Do I pay for valuations with different lenders?
Planning is restricted by how much we have tied up in IP1 and 2 at the moment, but if we can get an approximate idea of how much we can get out to use on the next one(s) that would be really good. Would like to start planning further ahead. I mean we have a medium/long term goal, but would like to start filling in the big gap from here to there.

Vals are free with plenty of lenders Azazel. Get in touch with your (or any) broker and they'll order it and set it up for you. Get them to sit down and plan your 'accumulation' phase too.

Cheers,
Redom

 

[Michael_X]

No luck involved! No, there has been a bit of dumb luck along the way.
Ah that's right, if you pay LMI you're kinda stuck with that lender or it's wasted.
Yeah, trying to decide the best way to go, pay LMI and add it to the loan over 5 years or keep using 20% - or a combination with different purchases? Ugh. I always thought 20% deposit was the way to go, but it seems to make sense to free up as much money as you can since LMI is deductable.
Could speed up our 'accumulation phase' - ha, look at me and my fancy IP speak.

The other consideration is your strategy.

If you planning on adding value eg renovation, then 20% would be a good option as you can valuation shop. Paying LMI then having to move would be a waste.

If the purchase is set and forget and the market is moving up, then 88% lend works really well. Allows you to accelerate your accumulation phase and having that extra equity buffer in place is great for a rainy day.

Cheers,
Michael

 

[Jamie M]

Vals are free with plenty of lenders Azazel.

Not all brokers can order upfront vals with the dragon though - keep that in mind. They have to be gold or flame status.....I think, unless they've rolled it out to everyone.

If your going direct - the banker should be able to order it (but a lazy one may try to avoid it).

Cheers

Jamie

 

[Redom]

Not all brokers can order upfront vals with the dragon though - keep that in mind. They have to be gold or flame status.....I think, unless they've rolled it out to everyone.

If your going direct - the banker should be able to order it (but a lazy one may try to avoid it).

Cheers

Jamie

Ah true, most that write decent volumes would have it i assume.

In any case, as youre at 80% lends may be best to order a few vals from different suitable lenders. As you mentioned, St George may not even be suitable given their relative conservative approach in cash out policy.

Cheers,
Redom

 

[Colin Rice]

Not all brokers can order upfront vals with the dragon though - keep that in mind. They have to be gold or flame status.....I think, unless they've rolled it out to everyone.

Correct only available to Gold and Flame Brokers.

I have had 100% success with cash outs to 90% with St George. Occasionaly get asked for an AIP for the purchase with no other evidence required.