I am currently looking at refinancing my PPOR and buying a house to move into, renting out my current unit. With around $50k available to me from my PPOR (excess below 80% LVR) I am finding myself pondering the pro's and con's of forking out for LMI. On one side I hate the idea of giving away a large amount of money for nothing, however with only $50k available to me this will only allow me to purchase a $200k property without LMI. If I was to pay the penalty for a higher LVR then I could afford the required amount of around $450k for the new property. So I guess I am after some input from those of you who have had the same choice: stop and wait, save the money and hope that property values don't outpace my savings, or bite the bullet, pay the LMI, and get into the market allowing the property – that i now own – to increase in value, hopefully offsetting the LMI.
Any thoughts would be greatly appreciated.
There are a couple of lenders that will waive the LMI upto 85% so explore all of your options before you jump in.
In saying this remember that LMI incurred for investment purposes is tax deductible.
Richard Taylor | Australia's leading private lender
malleeboy wrote:bite the bullet, pay the LMI, and get into the market allowing the property – that i now own – to increase in value, hopefully offsetting the LMI.Hi Malleeboy
Not that we are experts but this is what we did – bit the bullet, paid the LMI & now have 2 proeprties – PPOR & IP increasing more in value than we could have saved. The LMI was around $4k & is tax deductable but we are confident growth will more than cover this is no time.Cheers
StellaIf you think long term, LMI can help you buy much more property which could grow
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Qlds007 wrote:In saying this remember that LMI incurred for investment purposes is tax deductible.Very true but unfortunately in your case, since the property you will be buying will be your PPOR, the LMI will not be deductible.
Yes I was wondering if the tax deduction would apply in my case. Looking at my spreadsheets, with 5% growth, or even less the LMI should be covered by the increase in value within a year which as you guys have said above is well worth it. Just a thought – is the LMI calculation based on the new property purchase value, or the entire portfolio of properties? The Investment property will remain at 80% LVR so I am assuming this will not be counted – am I correct. And also does anyone have a rough guide of the rate charged? I am thinking of budgeting around 2-2.5% – am I on the money?
Cheers and thanks for your thoughts.
Hey Malleeboy
I should preface by saying that I am not an expert on LMI, but my understanding is that the LMI calculation is based on whichever property you are borrowing above the 80% (or 85%) mark. You can find LMI calculators via google to help quantify your numbers.
As to your original question, I think LMI is well worth it. As you identified it frees up alot of extra money in the short term, which if invested well will provide you with a return well in excess of the initial outlay. In additional the LMI is often built into the life of the loan which means that the initial outlay is not money you have to put up up-front.
One other thought… (you did say 'any thoughts'…) have you considered using your new purchase as an investment property and renting a home to live in? Then the LMI would be tax deductible and your affordability from a lenders perspective will increase.
Or taking it even further, if you were wanting to capitalise on the current upturn of the market, perhaps you could use the money you free up to buy two investment properties (perhaps even paying LMI on those to make the numbers work).
Best of luck! Let us know which way you go.
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