Same lender, new IP, no xcol?

[mcarthur]

Trying to learn how these things work - I'm still setting up for the future, and the following has been suggested:

PPOR - Bank 1 - 80% LVR, IO
IP1 - Bank 2 - 90% LVR with LMI, <$500,000, IO
IP2 - Bank 3 - 90% LVR with LMI, <$500,000, IO​

and in the future, to go:

IP3 - Bank 2 (year+ away)​

Let's say that IP3 won't happen until IP1 is LVR 80% or less.

Will Bank 2 require IP3 to be xcol to IP1, or can they stay separated even though they are with the same bank?

One advantage I've been told to keeping in the same bank is that the LMI paid on IP1 can be "reused" for IP3 - so would that mean the (say) $8,000 LMI capitalised into the IP1 loan will simply be taken out of the IP1 loan and capitalised into the IP3 loan (since IP1 is now <80%)?

Thanks!

 

[Peter_Tersteeg]

The loans don't need to be cross collateralised, it's fairly straight forward to do this. If you need to use equity in another property for the next purchase, access that equity as a separate application to the funding for the new IP.

You definitely don't want to cross two properties when LMI is involved, as the LMI of the two loans in aggregate is almost certainly going to cost more than the LMI on two loans in isolation. There's no advantage in using the same bank or another to reduce LMI if it's structured properly (ignoring that lenders do have different LMI rates).

 

[Jamie M]

Will Bank 2 require IP3 to be xcol to IP1, or can they stay separated even though they are with the same bank?

They can stay separate. Having multiple properties with the one lender doesn't mean they have to be crossed up.

Cheers

Jamie

 

[Jess Peletier]

One advantage I've been told to keeping in the same bank is that the LMI paid on IP1 can be "reused" for IP3 - so would that mean the (say) $8,000 LMI capitalised into the IP1 loan will simply be taken out of the IP1 loan and capitalised into the IP3 loan (since IP1 is now <80%)?

LMI is not transferable between properties to the best of my knowledge - the only way I can see that potentially working is if the two IP's are x-coll. And even then I'm not sure how it would work (b/c I never x-coll properties ) but I assume it would just be some kind of adjustment.

What he might mean (but I doubt it) is that you could use the LMI paid on IP one to access the equity back up to 90%, then use that equity as deposit for IP3. That reuses the LMI, but doesn't transfer it to the other property. And you can do that regardless of which bank you use for IP3.

 

[mcarthur]

Thank you everyone for your help. I get it now.
Really good information.