LMI, a tool to increase borrowing?

[SupaRex]

Hello,

I'd like to get everyone's thoughts on using LMI to increase the amount you can borrow. I understand how LMI works, but what I want to know is do you think it is worth paying to increase the amount you can borrow?

Assuming you do, then what's the limit? Would you borrow as much as you humanly can?

Cheers,
Brad

 

[Rolf Latham]

Hi SR

Much depends on your equity position.

if you have heaps of cash and equity then LMI is a likely waste of dough.

Lmi can be useful to those where the EQUITY position is weaker than their INCOME position

ta
rolf

 

[sash]

I consistently use LMI as I try to borrow at 97% (LMI capitalized).

There is a diminishing rate of return on this as LMI gets expensive past 350k properties.

For example, I got a quote for LMI (CBA Low Deposit premium) and is is about $3500 for 250k property. That means I need to cough up only a $12,500 deposit with $7500 for stamps (NSW), and $1400 for Legals, registration, etc.

If I went with no LMI option...I am handing over a $50 deposit, $7.5k for stamps, and $1400 for Legals. I grand total of 58k vs 21.5k.

Also, the $3500 amount is more like $1800 after tax deduction.

Note that LMI amount is cheaper as I am getting the CBA self-insured LMI...if use QBE or Genworth it is more like $5500 which works out to be $2950 after tax (based on a 46.5% marginal rate).

I like borrowing to the max as it keeps the extra cash for emergencies and for other deals. Also, banks are making it harder to get cash via equity for equity preservation is now very important.

Hello,

I'd like to get everyone's thoughts on using LMI to increase the amount you can borrow. I understand how LMI works, but what I want to know is do you think it is worth paying to increase the amount you can borrow?

Assuming you do, then what's the limit? Would you borrow as much as you humanly can?

Cheers,
Brad

 

[Peter_Tersteeg]

I ran some figures this evening. The difference in LMI between 90% and 91% is about a 30% increase with most lenders.

As soon as you look to borrow more than 90%, LMI gets expensive very fast.

 

[Paul Thewlis]

It's a choice between lower cost/lower leverage and higher cost/higher leverage. It comes down to personal choice. But if you are going for higher leverage its certainly less in LMI costs to buy 2 x $300K property than one $600K property because LMI rates increases with both with loan size and LVR

Regards
Paul

 

[Mick C]

I find these day's a lot of people are income rich, but deposit poor... lifestyle?

So if they wanted to buy 2 properties within a short period of time ( 6-12 month) then using LMI to gear their position makes sense.. especially for construction loans.

I personally use LMI as a wealth creation tool, but i try to avoid paying any more then 85% LVR- personal choice.

Regards
Michael