We have finally exchanged contracts on our second IP and had planned to use a LOC from loan #1 to add to the deposit on loan #2 but now I am a bit confused about what my mortgage broker is telling me in regards the structure of our loans. Apparently we can't capitalise the LMI on the LOC so she said we'll just have to refinance our existing loan and use the equity. Is this cross collateralising??
Could someone please look at my figures and suggest how they would structure the finance? IP#1 Valued at $370,000 Current loan amount $291,000 IO Approved for increase to 85% LVR LMI payable for 85% LVR $6K (according to broker)
Just spoke to the Mortgage broker and she said that its common for them not to allow this with LOCs -we are with newcastle permanent. Should we go ahead and increase the existing loan? she assures me that they will still be kept separate and that only if i didnt increase the loan, that it would be cross collateralised…. I'm so confused!
Hi Richard, i just realised that i had my figures wrong and the property was actually valued at $350,000 (damn those overly conservative valuations!!) and the LOC was to be increased to 90% LVR. I guess this is what makes the LMI un-capitalisable??
So I'm now thinking of putting less of my own cash down on the second mortagage and just pay the LMI upfront in order to stick with the LOC and avoid cross collateralising. After all, the LMI is technically capitalised – just on the other mortgage by way of increased required borrowings.
So the numbers would be: Loan #1 Valued at $350K Loan amount increased to 90% LVR = $315K Current balance of loan = $291K Available for withdrawal through LOC = $24K LMI to pay upfront = $6K
Loan #2 Purchase price = $369K plus costs = $383K minus cash deposit of 34K ($40K-$6K for LMI Loan #1) = $349K minus LOC $24K = $325K = 88% LVR = LMI of $5K (capitalised)
Does this sound like the best way to go? Regards, K
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