LMI Lending - maximizing borrowings

[sash]

Hi All

I just have further improved a strategy on how to continually borrow subject to serviceability - i.e. do more LMI borrowing so long as you are able to service.

Most people don't know that both LMI insurers set limit of $1.5m in aggregated mortgage insured borrowing to manage their risk with any one borrower. At a stretch they will go to $2m but approvals are difficult.

The way around this is to spread your borrowing across multiple LMI lenders as there are only 2 major ones it will be difficult once you exceed $3-4m in borrowings.

What found a way around this...by refinancing your LMI related loans with another institution once your property value has gone up and a bank valuation reveals you can borrow 80% of less. By continually doing this you still borrow with LMI.

Note you still need to cover the serviceability side.

 

[datto]

If one fraudulently covers the serviceability side then one could become very rich.

I'm not recommending anyone do this but I'm sure it happens.

Matter of fact, years ago I was approached by a lender who "could work something out". Of course I refused. Might be harder these days with tighter regulations.

 

[Aaron_C]

If servicing is not an issue then this is the oldest trick in the book. Maximise LMI exposure with the two LMI lenders, then you can maximise LMI exposure with lenders that have their own inhouse DUA.

 

[Peter_Tersteeg]

My spreading the portfolio around multiple lenders you can borrow up to about $1M at 90% LVR with various lenders without too much difficulty. Technically $1.5M is possible, but the risk becomes very high that the deal will end up with the actual mortgage insurer and have a statistically high probability of being rejected.

We've found that by being very strategic in this approach, it's possible to lend about $5M-$6M at 90%. Not too difficult, but you do have to have a detailed understanding of the lenders relationship with the mortgage insurer, as well as other more subtile lender policies. It's not something that can be achieved using a single lender.

At this point we've found we start to run out of suitable lenders with whom the appropriate criteria can be applied. Eventually you need to resign yourself to 80% lending.

 

[sash]

Why risk it...revalue every 2-3 years...that get taken off the LMI insurer's exposure to you. They will find out as they simply need to run a check on how LMI based loan exposure they have on you.

Very important to know ...well for myself so I can continue to borrow LMI suported loans like a never ending packet of TIm Tams.

My spreading the portfolio around multiple lenders you can borrow up to about $1M at 90% LVR with various lenders without too much difficulty. Technically $1.5M is possible, but the risk becomes very high that the deal will end up with the actual mortgage insurer and have a statistically high probability of being rejected.

We've found that by being very strategic in this approach, it's possible to lend about $5M-$6M at 90%. Not too difficult, but you do have to have a detailed understanding of the lenders relationship with the mortgage insurer, as well as other more subtile lender policies. It's not something that can be achieved using a single lender.

At this point we've found we start to run out of suitable lenders with whom the appropriate criteria can be applied. Eventually you need to resign yourself to 80% lending.

 

[Peter_Tersteeg]

Revaluing periodically is part of the strategy Sash, but that's not where the roadblock occurs. It's definitely not a never ending packet of Tim Tams. The problem is that people aren't revaluing and increasing to 80%, they're going to 90% again. It's not much of an issue if you buy at 90% then only top up to 80%, but most people trying to aggressively build a portfolio who are purchasing at 90% will try to keep their loans at 90%.

 

[S.T]

So if you're at 90%, can you revalue to 80% and then the LMI risk/policy gets removed? Does this happen automatically or it's something you have to request?

 

[Peter_Tersteeg]

So if you're at 90%, can you revalue to 80% and then the LMI risk/policy gets removed? Does this happen automatically or it's something you have to request?

It doesn't get removed (assuming you stay with the same lender), but increasing to 80% of the current value means there's no additional LMI to be paid on the loan so it's not going to end up in front of a mortgage insurer at all.

The previous policy still applies to the loan in most cases I've found that you can do an increase to 80% today, then in a few months do an increase to 90% and the LMI you paid for this loan originally will still be credited.

 

[sash]

The best way to do this is to move to another bank.

An example of how this works....

Lets say you buy a 250k property and borrow 90% + LMI capitalised via bank X at 230k.

In on other 2 years....you notice the property has gone up to 300k. By simply moving this loan to bank Y.....you can still borrow 230k...and potentially 10k in extra funds at still be under the 240k and 80% LVR level required by most banks prior to LMI being applied

In the case above say you had hit the $1.5m gross lending with a LMI provider...you know have $230 to play with again.

So if you're at 90%, can you revalue to 80% and then the LMI risk/policy gets removed? Does this happen automatically or it's something you have to request?

 

[starter]

What I don't get is why would you move to another lender to only go up to 80%? Sure you may get that loan of the LMI book but you're giving up 10%, why wouldn't you just revalue up to 90%?

 

[Corey Batt]

What I don't get is why would you move to another lender to only go up to 80%? Sure you may get that loan of the LMI book but you're giving up 10%, why wouldn't you just revalue up to 90%?

Yup.

No point refinancing a LMI paid loan to 80% with another lender just to free up capacity to lend at 90% again. You may as well retain the current property and bring it up to 90%, and next purchase be at 80%.

Same end result with LVRs, but you don't lose the previous LMI paid.

 

[tobe]

You should do your lending diploma Sash. You would make a fine addition to the team.

 

[Rolf Latham]

Yup.

No point refinancing a LMI paid loan to 80% with another lender just to free up capacity to lend at 90% again. You may as well retain the current property and bring it up to 90%, and next purchase be at 80%.

Same end result with LVRs, but you don't lose the previous LMI paid.

different ends of the idealogy.

more important in this case to be able to buy at 90 % Im guessing

ta
rolf

 

[sash]

Primary reason is to continue funding more 90% loans...where possible I pull out equity on the side also.

Yup.

No point refinancing a LMI paid loan to 80% with another lender just to free up capacity to lend at 90% again. You may as well retain the current property and bring it up to 90%, and next purchase be at 80%.

Same end result with LVRs, but you don't lose the previous LMI paid.

Thanks Tobe...

You should do your lending diploma Sash. You would make a fine addition to the team.

Yep spot on....for 3.5-4.5k (based on properties less than 320K)...I only put 10% down. After tax the 2-2.5k......so lets the property goes up 60k...and I only put down 40k (including stamps) instead of 70k....I have a profit of150% rather than a 85% return on equity!

different ends of the idealogy.

more important in this case to be able to buy at 90 % Im guessing

ta
rolf