Hi,
I've read of a person who managed to get a home loan/investment loan at 90% LVR and paid no LMI. This will be for our PPOR which will convert to an IP after 5yrs when we will outgrow this which is why I want to keep the deposit amount low so the equity will not be locked into that property.
Has anyone out there managed to negotiate this deal with the banks/lenders, I'd love some pointers.
Thanks!
This is a very aggressive finance startegy.
The problem with LVR levels like this is while it allows you to enter the market earlier as you need less deposit, it leaves you very exposed should something happen that requires you to have to sell the house in a hurry for any reason; such as job loss, illness, car accidents etc.
The other problem is that you will have higher repayments due to the bigger loan, and this also adds to the financial equation. This impacts on your ability to decrease debt, which you should ALWAYS be doing on ANY debt; consumer or investment – in my opinion.
Life happens and don't think it can't happen to you. It happens all the time, and the people who do their dough are the ones who are highly leveraged with no cash or equity reserves to save them.
You can get other loans that don't lock your equity in that property such as LOC's, or offsets with re-draws etc, so don't be frightened to build up as much as equity as fast as you can.
You can always use it later, but I would like to see you start off at a safer level of exposure.
You will not find any of the high street Banks offer you 90% LVR without LMI (85% is possible) however it is achievable in the market place.
In saying this those lenders that offer such a product charge either a higher rate of interest of a higher application fee.
Richard Taylor | Australia's leading private lender
Thanks for the responses
We've actually got enough cash to pay for 90%of the property, however we know this property would only last us 3-4 years until we have more children. We are planning on getting a two bedroom apartment in the inner city which we would like to hold even after we move onto another bigger place. This is the reason I do not want to lock up the equity. We will have no other properties to secure this against so will need to lock some of it away as the deposit, but my belief is the less locked away the better.
Any tips on the best lender for this situation?
Cheers
stran
If you are looking at buying the place and then moving out to another PPOR in a few years time yet still retaining the current property you would be better off borrowing 100% of the purchase price and deposit the balance of your savings into a 100% offset A/c.
When you move out in a few years time you can use the funds in the offset account as deposit and still claim 100% of the interest on the existing home.
This way you get the best of both world. Access to your funds on call and the ability to eventually claim 100% of the interest on this loan as a tax deduction. Remember if you redraw or refinance down the track the additional borrowing is not tax deductible.
Hope this makes sence. Drop us a line if you want more information.
Richard Taylor | Australia's leading private lender
Richard, is that to say by redrawing from your offset account rather than redrawing the loan, you can utilise these funds for other purposes and still get the deductibility of higher interest charges as the value of the loan had only been temporarily reduced by the 'spare' funds in the offset account?
ScottNoMates, I know I'm not Richard, but I hope you don't mind my jumping in and answering: my understanding is that the answer is "yes".
This is why I've advocated several times on the forum that one should never pay off a loan, but instead deposit excess funds in a 100% offset, even on your PPR. Then if you move out of your PPR and decide to keep it as an IP, you can simply draw the funds from the offset to buy a new PPR, and the interest on your "PPR come IP" is fully deductible.
Best wishes, Tracey in Brisbane
Thanks
Exactly what I was planning.
Now with no properties to secure this against I'm looking for the best way to do this without having to fork out for expensive LMI….sounds like 85% LVR is the best the big loaners can give. Can any of the loan providers do better?
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