LMI question for the mortgage brokers?

[wylie]

I've just read the Money magazine story (Money Best of the Best 2014) where it is suggested that "Another way to reduce your premium is to split your loans. For instance, LMI premiums on loans over $300,000 cost significantly more than those charged on loans les than $300,000."

"Finder.com.au says if you were looking to buy two investment properties for each of which you need a $300,000 loan at an LVR of 95%, common sense would say to take out a loan for $600,000. However, the premiums calculated on two $300,000 loans may be less than the LMI premium on a $600,000 loan."

"According to the Genworth estimator, on a $600,000 loan for up to 30 years, with an LVR of 95%, the saving could be as much as $12,584, which more than makes up for the doubling-up of application fees from two loans."

I'm wondering if the same theory could be used for someone borrowing $600,000 for ONE house. Could they use two loans somehow to reduce LMI?

 

[D.T.]

Sounds like they're referring to cross coll

 

[Singo]

Money magazine was referring to cross col loan which itself should be avoided. And LVA is calculated as the percentage of the original security. So splitting the loan which is taken against one security won't make any difference.

 

[wylie]

If it was possible, then I'd happily cross-coll to save $12K in LMI premium. Once the loan is reduced or the value of the security high enough to refinance without LMI then cross-coll issue could be fixed... yes?

 

[Peter_Tersteeg]

What they're saying is that if you purchase two properties with loans of $300k each, the sum of the LMI across the two purchases is less than that of a single loan of $600k.

The LMI premium is calculated based on the LVR of the total loans against the total security. Thus:

1. If you cross collateralise the two loans, the LMI will be assessed on the total borrowing of $600k. Cross collateralising costs you more when it comes to LMI.

2. You can't reduce the LMI on a high value property by splitting the loans into multiple portions.

The LMI premium has price points based on both the LVR and the total loan amount. You can theoretically manipulate the loan amounts across multiple (non-crossed) properties to reduce your premium, but in practice it's tricky given valuations are very unpredictable.

 

[wylie]

You can't reduce the LMI on a high value property by splitting the loans into multiple portions.

Bugger!!! Thought it sounded too good to be true .