To pay LMI or not to pay?

[auror]

Thanks everyone for your thoughts! No we won't be going out and buying 5 in one hit, we were planning on buying 1 a year (the excess cash can just park in the offset). Unless we see some bargains this year then we might buy 2

All 5 IPs would be very cheap IPs though ($200k) so we may yet buy some more medium priced ones.

Another investment idea you may want to consider is to start up a SMSF and buy one property in it on 50% deposit.

That way in a round about way it's possible for the payment of capital of the loan to be a tax deduction.

OK, thanks....... but we are in our mid 20s so we're probably not going to do anything about SMSFs until we are a bit older.

Cheers!

 

[Perp]

Perhaps you'll enjoy reading my Somersoft blog entry, Should I wait to buy again, or pay LMI?. Or not.

 

[auror]

Thanks Tracey! That was a good read

Update: I'm currently negotiating to buy an IP that is approximately 10% undervalued under true market value and comparable sales. My intention is to have it revalued ASAP so that I can pull out the equity and use it towards a deposit on my next IP.

With that in mind, if I buy it at 90% LVR I'm going to have a double whammy of LMI when I refinance. Surely it would be better for me to buy this at 80% LVR and save paying the LMI initially (especially if I'm going to refinance anyway)?

Thanks for your thoughts.

 

[Perp]

With that in mind, if I buy it at 90% LVR I'm going to have a double whammy of LMI when I refinance. Surely it would be better for me to buy this at 80% LVR and save paying the LMI initially (especially if I'm going to refinance anyway)?

If you have the extra 10%, and no other intended use for it in the interim, then yes, that sounds like a reasonable bit of logic.

 

[Rolf Latham]

Surely it would be better for me to buy this at 80% LVR and save paying the LMI initially (especially if I'm going to refinance anyway)?

.

Maybe.........it depends if u have it set up right and the lender will allow cash out on top ups. In this way you only pay LMI on the new money, that being the extra bit that came out with the new val. Typically, but not always this tends to be a fraction.

If refi to access equity is part of your strategy, then you need to make sure you sset it up that way from the start, and not wonder "what happened" in 6 mths time when you want ur initial 10 % and the equity as well

ta
rolf

 

[tobe]

Also, at least one major lender has a policy of charging LMI on the full amount when you go back for cash if you hadnt previously paid LMI, so it might be worthwile getting an 91% lend first if you were with a lender with that policy.
Cashout policy across the board is being tightened up, for the cost of LMI (reduced through tax benifits) I would always get my money up front, rather than count on equity that may or may not eventuate as borrowable funds at a later date....