LVR - Does this include LMI??

[nico76]

Hi Guys,

I have just refinanced to upgrade home @ 90% + LMI, however the lender is considering the $12k LMI as part of the LVR pushing me to 92% LVR.

Problem is, this lender has breaks in ther rates
<80%
>80% up to and including 90%
>90%

As you can see, including the LMI in the LVR pushes me into the top rate bracket which means I'll be paying 0.2% extra for the life of the loan.

I wonder whether this is at the lenders discression, or whether there is a rule around this as it doesn't seem right to me?!

Any insight you can offer would be much appreciated.

Regards,

Nick

 

[Jamie M]

Hi Nico

The banker or broker declares whether LMI should be capped onto the loan when the deal is being submitted.

Do you need 90% + LMI or can you get away with a lower loan amount and incorporate the LMI into the 90%?

Cheers

Jamie

 

[Shahin_Afarin]

You can pay the LMI or capitalise it (add it on top of the loan). A lot of lenders price on risk so it is completely legitimate. How come you were not aware of this when taking out the loan originally?

 

[Spectre]

Options... could include...
*try to negotiate the rate on threat of going somewhere else,
*reduce the loan to fit <90%
*switch lenders to one who doesnt tier on rate or add on with the LMI cap.
*Take the ABL product with the 20k secured visa which doesnt fit into the LVR equation which then may also indirectly lower your LMI cost.
*if you're getting trades to do the work get the lender to revalue with their quotes - if you havent already.

sure more will offer thoughts.... these are just my initial ones...

 

[Peter_Tersteeg]

As you can see, including the LMI in the LVR pushes me into the top rate bracket which means I'll be paying 0.2% extra for the life of the loan.

I wonder whether this is at the lenders discression, or whether there is a rule around this as it doesn't seem right to me?!

Different lenders have different policies about this. They are consistant within that lender (so it's not a discressionary thing).

If you need to capitalise the LMI on top of 90%, then you've probably chosen the wrong lender. There are plenty of lenders who will capitalise the LMI above 90% but only require you to pay the 90% interest rate.

Other lenders will charge you the next pricing bracket the moment you borrow more than 90%. HomeSide and AMP would be two examples that come immediately to mind.

None of this means that one lender is better than another, they all have strengths and weaknesses. Some lenders may be more suitable than others depending on what it is you need and your circumstances.

Whoever set up the loan should have been able to tell you about this upfront.

 

[Brady]

Other lenders will offer you the rate base on the BASE LVR (exc lmi), not Total LVR (inc lmi)

The broker should of picked this up from original discussion to go to 90%

 

[Jamie M]

Other lenders will charge you the next pricing bracket the moment you borrow more than 90%. HomeSide and AMP would be two examples that come immediately to mind.

Yep - and it's not just the rate that changes but also the level of scrutiny that the application receives.

For instance, anything above 90% with AMP is going to end up with Genworth having to sign off on it. Keep it below 90% and there's a good chance the LMI will be approved in-house under their DUA. So capping LMI on 90% deals with AMP is rarely a good idea.

With Homeside, credit scoring tends to get harsher above 90% - therefore, the increased rate coupled with harsher credit scoring means we tend to stay away from submitting really high LVR deals with them.

Cheers

Jamie

 

[D.T.]

Options... could include...
*try to negotiate the rate on threat of going somewhere else,
*reduce the loan to fit <90%
*switch lenders to one who doesnt tier on rate or add on with the LMI cap.
*Take the ABL product with the 20k secured visa which doesnt fit into the LVR equation which then may also indirectly lower your LMI cost.
*if you're getting trades to do the work get the lender to revalue with their quotes - if you havent already.

sure more will offer thoughts.... these are just my initial ones...

Could another option be to separately finance (PL or CC) the 12k LMI to keep the loan LVR at 90?

 

[Aaron_C]

Which lender is this? I'm guessing CBA? This is why I rarely cap above 90% in addition to the scoring thing that Jamie talked about.

 

[Peter_Tersteeg]

Could another option be to separately finance (PL or CC) the 12k LMI to keep the loan LVR at 90?

It can be done, but lenders generally don't like you to lend money to find funds to complete a loan deal. It's definitely not recommended.

If you had to go down that path in this specific scenario, you'd be better off to cap the loan at 90% inclusive of LMI, then use the CC for the shortfall on the renovation. The lower LMI premium would make the whole deal cheaper.

Still, a credit card is expensive (if you can't pay it off immeidately). The best result is usually to try to match the right lender with the requirements of the actual deal. Unfortuantely this isn't as easy or practical as it sounds in a refinance or top-up scenario.

 

[Tim W]

Could another option be to separately finance (PL or CC) the 12k LMI to keep the loan LVR at 90?

Additionally, you might consider whether this option would likely mean there's going to be another hit on your credit report ...