Try to work out how LMI is calculated

[THEGREAT888]

Hi Guys
There are two properties.

Property A valued at $400000
Property B valued at $300000

Total value $700000 at this point

Total loan for above $300000

With the above property no LMI applied

If a decision made to purchase Property C valued at $500000.
Loan for Property C $500000.00

This will increase total value for
Equity A+B+C+=$1.2m
Loan A+B+C=$800000

With the third property, the LMI is still not applicable, in my calculation.


$1200000x$80%=$960000

As long as the total loan below $960000 then no LMI.

Am I right?

T

 

[Peter_Tersteeg]

Depends on how you structure the loans. If you cross collateralise everything, then you're correct. You can also achieve the same result with some prudent structuring, by only lending up to 80% against each property separately.

You could borrow up to 90% on the new purchase in order to preserve your cash/equity position for future investments, then you'd pay some LMI on that purchase only.

I strongly recommend you avoid cross-collateralising. It's not required to avoid LMI in the scenario you've outlined. If you do cross and you need to pay some LMI in the future, it will cost you a whole lot more.

 

[Aaron_C]

You are right if you are cross collateralising...so don't.

 

[Colin Rice]

LMI is a leveraging tool and if used correctly in the right circumstances and structure is a friend not a foe.

Your post screams x coll and best to be avoided for many reasons.

 

[tobe]

if you can avoid LMI with xcoll, you can avoid LMI with the right structure.

You can usually also gain the exact same interest rate discounts and bank fee waivers depending on the lender.