Worth hitting up LMI to expand portfolio?

[mgs4]

If your sitting on 80% LVR on your existing portfolio and you're not able to expand for some time if you hold 80% LVR on the next purchase, what thoughts do people have on moving existing holdings above 80% LVR, and likely for the next purchase, to fund additional purchases?

Is anyone else perhaps in this situation or been in this situation previously?

 

[DaveM]

A few grand a pop to keep tens of thousands of capital available to invest and create further gains, and its deductible over 5 years as well. Sounds like a plan to me.

 

[Peter_Tersteeg]

A lot of clients have used 90% lending as part of their acquisition strategy with a lot of success. In a time of low interest rates, affordability is less of a problem, but capital becomes harder to get your hands on. Using LMI is a simple way of addressing this challenge.

I will say that in most cases, I don't think lending 95% really helps. The cost of the LMI in itself eats up a lot of the extra funds gained. Future valuations also tend to be far more difficult to get recognized as there simply isn't any equity there to begin with. If you need to go to 95% for the purchase that's fine, but be prepared to wait quite a while before there's any equity in the property that's worth accessing in the future.

 

[Singo]

Is anyone else perhaps in this situation or been in this situation previously?

We used to go for 80% LVR. But now aiming 88%.

In a time of low interest rates, affordability is less of a problem, but capital becomes harder to get your hands on. Using LMI is a simple way of addressing this challenge.

This is the reason.

 

[mgs4]

Have some people found the additional transaction costs due to LMI really eats up a lot of the potential cap gain, after all the cap gain is uncertain the LMI payable is not.

 

[Singo]

Well, we recently accessed 21,000 additional loan for LMI of around 2,650. That 2,650 is added to the loan. If we hadn't used that 21,000, we wouldn't have bought that property. I don't think 2,650 is a big cost for 21,000 additional funds. We made sure that we are not paying lots of LMI. 88% seems a good level.

 

[Terry_w]

Imagine if you paid 2% LMI on a property way back in 1993. What would the property be worth now compared to the LMI paid.

It may be tax deductible, over 5 years, depending how you set things up.

 

[Colin Rice]

LMI is a leveraging tool that enables you to get what you otherwise could not.

 

[CHAOS]

Apart from the obvious 2% difference - what is the difference between 88% LVR and 90% LVR - why go 88%?

 

[Richard Feynman]

Apart from the obvious 2% difference - what is the difference between 88% LVR and 90% LVR - why go 88%?

Above about 88%, LMI seems to skyrocket with most lenders.

 

[D.T.]

Apart from the obvious 2% difference - what is the difference between 88% LVR and 90% LVR - why go 88%?

Lmi cost plotted against lvr is an exponential curve. At 89 it starts ramping up hard.

Personally, I see merit in 95 ppurchases and 90 refinances.

 

[Rolf Latham]

Go hard go early with a reasonable balance of LVR, $ value per security and total LMI concentration risk with the one LMI provider.

Lot to be said to using a broker over DIY or a banker here, because you may need the LMI provider diversification long before you or your banker may be aware.

ta
rolf

 

[mgs4]

Lmi cost plotted against lvr is an exponential curve. At 89 it starts ramping up hard.

Personally, I see merit in 95 ppurchases and 90 refinances.

On say 95% LVR for purchase, if the value of your purchase falls by say 15% and you then have negative equity how would this normally play out. Can the bank at any time request an updated valuation and if you have negative equity then force you to top up cash or force a sale of the property? Or if you just keep meeting repayments is this not an issue?

 

[Aaron_C]

On say 95% LVR for purchase, if the value of your purchase falls by say 15% and you then have negative equity how would this normally play out. Can the bank at any time request an updated valuation and if you have negative equity then force you to top up cash or force a sale of the property? Or if you just keep meeting repayments is this not an issue?

Just make the repayments and the banks leave you alone, regardless of what LVR you have.

 

[mgs4]

Go hard go early with a reasonable balance of LVR, $ value per security and total LMI concentration risk with the one LMI provider.

Lot to be said to using a broker over DIY or a banker here, because you may need the LMI provider diversification long before you or your banker may be aware.

ta
rolf

Rolf on this doesn't the bank select who insures their exposure for LMI, the borrower doesn't have any involvement in that?

 

[Terry_w]

Rolf on this doesn't the bank select who insures their exposure for LMI, the borrower doesn't have any involvement in that?

The borrower selects the bank! (and thereby the LMI insurer)

 

[Aaron_C]

Rolf on this doesn't the bank select who insures their exposure for LMI, the borrower doesn't have any involvement in that?

Yes but we all know who they insure with so we can pick our bank properly. Plus most banks have a DUA so it doesn't need to go to the mortgage insurer directly.

 

[tobe]

Most lenders only have an agreement with one mortgage insurer. there are some smaller lenders and mortgage insurers who use both, but as a general rule, pick your bank, and you have picked your mortgage insurer.

 

[devank]

Brokers would love the 90% LVR. They get more commission

Well, we recently accessed 21,000 additional loan for LMI of around 2,650. That 2,650 is added to the loan.

In this example, on top of $2650 LMI, you will need to pay about $1000 extra stamp duty as well. Suddenly the 21K extra fund is reduced to about 17K.
Unless you have good cash flow coming in, I would stick to 80% (or less) LVR. Having said that, risk profile for each person is different.

 

[Aaron_C]

But devank for most people the limiting factor is equity, not cashflow - which is why LMI is popular with investors.