Reply: 2.1.1.2.1
From: Mike TheBloodyIdiot
Les,
Sim,
Thank you for your interest.
Les,
Great example of thinking outside the square, but...
I hate to disappoint you, but you really missing a lot of things.
True, you can go as high as 97%. But...
I guess I do not need to explain that the MAIN rule of investing is regular reinvesting your gains.
Lets say you have bought $200k property borrowing $194K after 12 month your property gone up in value by $30K, and you have repaid $10K of principal.
If you reinvest those $30K at 97% LVR it can potentially give you $1,000,000 of borrowing power.
Gooood!!!!
But... To redraw those 30K you will need to pay mortgage insurance, because you again will go over 80% LVR. Hence you need insurer's approval. My guess is that even at this stage you will find that mortgage insurers are too nervous people indeed.
However, there is a good chance that you manage to get an approval and redraw funds.
So you develop understanding that to ask for another loan even at 90% LVR involving the same insurer would be far too optimistic move. But you have ingenious idea of setting up holding company/trust and buy in their name.
So you gather all the documentation about your company/trust assets/liabilities, bank statements showing good saving history, two recent payslips, etc - In other words everything that average mortgage insurer requires to approve your loan.
Just kidding.
Your company/trust is nothing more then piece of paper, so you (unless you find an idiot who is obsessed by using his pen to sign any paper which comes in sight) are the guarantor.
This is you whose your financial situation will be assessed by the insurer.
Ok, you are very smart and go to the different lender who uses different mortgage insurer. You are in for bit of a surprise.
Most probably they will decline you without stating a reason (this is because privacy law has come in power).
But there is a small chance that you learn that they know everything about your previous deals.
Mate, this is not a secret to anyone that insurers share information between them. Before HK seminars speed of sharing was not so great, but after HK revealed some of his strategies info sharing has become lightening fast.
Here comes the worst thing. They do share not only info, but also their fantasies about you. The most innocent I can imagine would be "involved in suspicious activity".
And this will be it, i.e. end to your mortgage insurances - you will be once and forever at 80% LVR.
Of course, real scenario can deviate a little from a picture I painted, but final outcome is the same for all - LVR 80% or lower.
BTW, troubles with LMI do not necessary start at $1M mark that you mentioned. For a single security property some insurers start drive maximum LVR down from $300K. It is much less then rock bottom prices in any Sydney's decent area.
Sim,
If you ever decide to stand for Prime Minister, you have got my vote. You are so convincing mate, but...
First, you perhaps missed in my posts that I actually know how to get those 20% back (and I use this strategy), so I simply do not get why you waste so much energy trying to convince me to accept the way things are.
Second, what you are advocating is nothing else like smelly piece of good old communist dialectics, namely "Freedom is a recognised necessity" (Karl Marx). In other words if you understand this is necessary for banks to freeze 20% of your hard earned money, it would never represent problem for you, and hence you get a "freedom".
If you have chosen to go in this direction, why don't you extend your freedom by accepting John Howard's extremely convincing rationale for you to stay in rat race until you are 70?
Imagine how much time and stress you can save by not bothering with all this investment stuff and especially educating such an idiot like myself.
If you are consistent in your pursuit, your freedom will automatically be extended after you are 70 by recognising the necessity to live on $25,000 pa income while bums like bankers and myself will be living in lap of luxury.
Make up your mind which side of the fence you belong.
Cheers,
Mike - TBI