Pay less LMI now, or roll into loan and pay more?

[SupaRex]

Hi Guys,

I'm looking at a new property purchase. I have four other properties currently. This new loan will take me over 80% for my portfolio.

I hope this makes sense, so here I go:

The LMI on just the new house will be about $13k. If I DON'T pay that and make it part of my loan, then the LMI on my portfolio as a whole will be $19k.

The bank guy has suggested I pay the LMI upfront (I have the cash). The cash that I'd be using to pay the LMI will come from an offset account against one of the other loans (just robbing Peter to pay Paul?).

Normally, I'd roll the LMI into the loan, but the thing is my monthly repayments will be increased (it's going to be a stretch already) and (and this is the main point) - even though the LMI is tax deductible, I'll only be getting a portion of it back - for the next 30 years.

So guys, should I pay the lesser LMI amount now, or incorporate the higher LMI amount into my loan?

Many thanks for any helpful advice,
Brad

 

[Rolf Latham]

Hi Brad

Hard to say......much depends on other peripheral stuff.

In general capping the LMI is a GOOD thing But many lenders hit you for a bad credit score and increase rates where the loan is above 90 ( understandable rate for risk)

If all your properties are stand alone you may be able to structure it so that the lmi is much less ?

ta
rolf

 

[SupaRex]

Hi Rolf,

Thanks for the reply.

Unfortunately, all my properties are crossed up

On the single loan for the property I'm looking at, the LVR will be 81%, if I roll the LMI into the loan, the total LVR for my portfolio is 83%.

Brad

 

[Rolf Latham]

OUCH OUCH

Spanking for the banker : (

Classic case of bad credit advice. Not having a go at you, just the stoopid banker

Any chance you can clean it up before settlement........even with the same bank ?

Save 10 k in LMI at least I reckon !
ta
rolf

 

[Terryw]

You should really sort that crossed securities problem out sooner rather than later. Each property you add to it makes it increasingly harder to unravel down the track.

And, did you realise that taking the money from the offset account to pay the LMI would also result in higher interest payments for the life of the loan? (less money offseting = higher interest).

 

[SupaRex]

Hi Terry,

Yeah, I realise that paying from the offset account will result in higher interest payments. That's why I'm not sure what to do, and why I'm posting here

Brad

 

[Qlds007]

As Rolf stated what great advice from your Banker to X all of those lovely securties together so we can charge you extra in LMI.

And by the way can you pay that upfront please.

Sometimes it really makes you wonder what goes on in Bankland, is it laziness or just a comnination of naivity and bad bad advice.

Separate the securities and i think you would pleasantly suprised how much you would save if of course time can be on your side.

 

[SupaRex]

Thanks Richard.

I guess I'm at least partly to blame for not doing my due diligence and for believing/trusting banks.

 

[Aaron_C]

It's ok SupaRex - the important thing is now you know the error that's been made, so you should now take the steps to rectify it asap.

 

[Qlds007]

Super Rex

As Aaron said damage has been done it is how you rectify it that is important.

Dont blame yourself for trusting your Bankie. Lets face if you cant trust Banks that only leaves Politicians and 2nd Hand Car Salesmen left to Trust.

 

[luckyone]

Can you just put the extra 1.1% in to get that loan under 80% and take that one loan to another bank (so it doesn't have to be crossed with any of your other properties)?

I'm just thinking that the extra 1.1% is likely going to be less than the $13,000 LMI you're up for.

 

[Saint]

never ceases to amaze me how people get on this forum and put a post on how they went to the bank, then ask the brokers for advice after the fact on how it should have been done.

4-5 properties crossed with one lender to begin with needs some rethought to begin with.