Hi there, we own a house with aprox. 60k equity ($395k valuation) The property needs some minor repairs that will affect the valuation Being any higher ($12k repairs). We want to look at our first investment property by eofy 2011. What strategy can we use to avoid LMI if we want to borrow $350k?
Is the 60k equity you refer to free equity at 80% or is it the total equity availble (ie do you have a $335k loan)? Assuming it's available at 80%…
To avoid LMI you'll need 20% deposit plus costs (approx 5%), so about $87,500 for the investment property.
If property values continue to increase at recent historical levels (say 8-10% in Melbourne), this could give you an additional $31K-$37K in value in the next 12 months, less what you have to spend in repairs. Assuming you release 80% of this (to avoid LMI), you can release anywhere from $25K to $30K in equity. On top of the $60K available you could get somewhere close to the $87,500 you need.
So it then comes down to whether the valuation the bank gives you stacks up so you can release the equity you need and whether you can keep a lid on the $12K repairs. There are also lenders who have alternatives to LMI if you keep the LVR under 90% (and these prices are scalable as LMR increases)
LMI isn't such a dirty word though. If paying a few extra thousand can get you an extra $50K-$100K of purchasing power (and therefore future compounding value), wouldn't paying the LMI be worth it?
LH wrote:LMI isn't such a dirty word though. If paying a few extra thousand can get you an extra $50K-$100K of purchasing power (and therefore future compounding value), wouldn't paying the LMI be worth it?Couldn't agree more – most people get scared off by LMI, but it isn't neccesarily a bad thing. It means you can borrow more with less….as a borrowing expense it can also be deducted over 5 years.
In this respect, LMI can benefit investors. The same applies to FHBs – I know I'd prefer to get into the market with a 5% deposit rather than have to save the entire 20% deposit (which can take years – and property prices are likely to increase while your saving the deposit) to avoid paying LMI (which can often be added to the loan).
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks for the feedback above, I just hate the thought of paying LMI. Hopefully we’ll get a good valuation once we’ve tidied the place up
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