LMI on LOC?

[Lukey13]

Hi everyone

If I obtain a LOC secured against a property that in total with that lender is above 80% LVR, how/when is the LMI applied in relation to when the amount is drawn down upon?

For instance, if I get a 90% LVR LOC will the LMI be capitalised within that LOC regardless of whether I actually draw down on that available credit now or in 3 years' time?

If this is the case, I would have to be sure that if I went into LMI territory that I was sure to be using that money within the next 12 months, otherwise it would be a waste of LMI, if that makes sense.

Thanks in advance,
Luke

 

[Bradsdad]

LMI will be payable when loan settles, i.e. when funds bcome available not as you use them.

So as you say, if you don't end up using the LOC you would have paid LMI just for the ability to access the funds.

 

[The Chaser]

Hi Lukey

I have actually recently done this exact thing. I have a property that had existing loans against it that came to an LVR of approx. 79%, so I had not paid any LMI to date. I applied to access some additional equity to the lender's maximum LVR of 90% against the property's value. This meant I could set up a LOC for $70K. The LMI was deducted at the outset from the LOC proceeds (even though I have not yet drawn down on any of the available credit).

One good thing with setting up a LOC years after I took out the original loans is that with my lender LMI was only payable on the LOC funds and not the total borrowings (you might want to double check your lender's approach on this). This meant that for a $70K LOC I paid $1K for LMI. I had been expecting a LMI bill in excess of $5500! For me personally I decided that having the freedom to access $69K now if I found a great deal, was worth the price of $1K for LMI. Hope this helps.

Angela

 

[Jamie M]

One good thing with setting up a LOC years after I took out the original loans is that with my lender LMI was only payable on the LOC funds and not the total borrowings (you might want to double check your lender's approach on this). This meant that for a $70K LOC I paid $1K for LMI. I had been expecting a LMI bill in excess of $5500! For me personally I decided that having the freedom to access $69K now if I found a great deal, was worth the price of $1K for LMI. Hope this helps.

Angela

Hi Angela,

Do you mind me asking which lender you're with? I'm currently applying for a LOC with CBA. Same situation as you guys - borrowing back up to 90% of the loan (it's at about 80% LVR at the moment but it's yet to be valued by CBA so this may change). I'd resigned to the idea that i'd be paying LMI on the entire amount but if it's only the LOC amount that's great news!

Jamie

 

[Peter_Tersteeg]

If you're increasing an existing loan and you'd previously paid LMI, you'll only pay LMI in the the increase, not on the full amount again.

Whether it's a LOC, standard variable or fixed loan, the same rule applies. People often have the impression that LOCs are not like other residential loans. A LOC is simply a variable loan, permanently interest only with no fees or restrictions on extra payments and redraws. They often have higher interest rateas as well.

They're just another home loan but some lenders like to give other impressions by using big words like 'veridian'.

 

[The Chaser]

Do you mind me asking which lender you're with? I'm currently applying for a LOC with CBA. Same situation as you guys - borrowing back up to 90% of the loan (it's at about 80% LVR at the moment but it's yet to be valued by CBA so this may change). I'd resigned to the idea that i'd be paying LMI on the entire amount but if it's only the LOC amount that's great news!

Hi Mortza

I felt the same when I found out! The lender was ANZ. I didn't go into detail in my last post, but the LMI we paid was either on the full LOC amount ($70K) or I actually suspect it was even better than that (!) and was only on that portion of the LOC that applied from 80% and to the maximum 90%. ANZ also revalued our property first to determine the new 90% lvr.

So in a nutshell, after a (positive) reval our existing lvr dropped to 74.4%. Thus of the additional $70K equity that we could setup in a LOC, only $45,800 took us above the 80% threshold. This is the amount I believe we paid $1K LMI on (equates to an approx. rate of 0.22%, so seems right). Hope you have the same experience with CBA. Good luck!

Angela

 

[The Chaser]

If you're increasing an existing loan and you'd previously paid LMI, you'll only pay LMI in the the increase, not on the full amount again.

Hi PT Bear

We had exisiting loans but we had never paid LMI, as our LVR was always below 80%. However, we still only paid LMI on that portion of the increase that took us above 80% LVR. We took out the original loans in 2005, so maybe the amount of time that had elapsed before we applied for the LOC funds played a part? I had actually expected to pay on the full amount too, as the personal banker we used had originally quoted an LMI figure of $5500. Maybe we got lucky? If so, I am twice as happy!

Angela

 

[Peter_Tersteeg]

Many lenders fully insure loans regardless of the LVR. Even if it's below 80% LMI is still paid, but often it's paid by the lender and is transparent to the customer.

In this case when an increase is done, you only pay LMI on the increase. It's a very cheap way of extra funds over 80%. Macquarie and other mortgage managers are good examples of this. ANZ isn't.

Perhaps you got lucky

 

[Lukey13]

Thanks for the replies and relevant examples, everyone.

I'm planning on arranging an independent revaluation from one of my lender's preferred valuers and then hitting up Suncorp for a 90% LOC.

 

[Rolf Latham]

Dont be too happy just yet.

they may catch up with you

Ask the 1000s of Macq bank borrowers that had LMI recovery clauses added after the fact

ta

rolf