Here's something I have been thinking about lately and haven't read much advice on.
Given you don't usually have to pay LMI if you have a 20% deposit, is it worthwhile trying to get a 2nd source of finance to fund the 20% and thereby avoid the cost? Or is the cost/risks/stress of doing so not worth it.
If anyone has done this successfully would they be able to relate their experiences?
I'm planning to get my next IP with a 5% deposit, and have noted that the approximate LMI will be about 9k for a 300k loan. With the growth in personal credit that is available these days, is paying the LMI the best use of my cash or should I seek out additional credit to make up a 20% deposit? What are the implications?
Moose
One of the downsides is the interest rate charged by the 2nd mortgagee.
As their risk is higher the interest rate is higher. Most standard lenders dont like taking a 2nd mortgage behind another Bank and those who do will not go past 90% LVR.
All depends on what you are after. I have many clients who are looking for a 90-95% Lodoc and are happy to take a 10% secured personal loan at say 16% on a small portion of the funds rather than pay a higher rate on the total amount.
Richard Taylor | Australia's leading private lender
A good idea Moosehead – one that particulariy on a cheaper property makes real sense. If you can score an unsecured personal loan or 'deposit gap' loan, and get rid of it quickly (bearing in mind the interest is tax deductable for income producing borrowings) you may well find this will save you a lot of money. The idea would be to pay any extra money off that, and make sure it works out less in interest etc than the LMI you would be getting reamed for. (Do the sums and see how it compares) Another option if you have enough equity in your other property is to get the 20% deposit and costs as a limited security (not full security as in cross collatorised ) against that one (as long as you can service obviously) Some forward thinking lenders will do that, and a lot of it depends on your short and long term plans of course. ) I have also seen family/friends/etc at times lend money at a rate that is better than what they are getting in the bank, but less than a 'personal' loan. Win win! You can only ask!
All the best.
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