Do I lower my LVR or pay LMI?

Hi Kate,

Here is a creative solution.  Since it is your boyfriend's house, ask him if he is willing to lend you the shortfall so you don't have to pay LMI.  Eleven thousand is a lot of money, if you can save this, it would be a boost for the next one.

Discuss with him how long he can wait for the balance; the exit strategy (revalue after 12 months, for example); and interest on the balance if required.  Being your boyfriend, he should be willing to just let it slide.

Take care.

Angel

If it was me I would build up some more equity and avoid LMI, however some people prefer to pay LMI if they have to instead of waiting to build up equity especially if they think the investment property will gain more than the LMI cost  compared to the time period it would take to get LVR down to 80%

……..Or get the investment property valued, by the bank so you know what figures you are working with. Than ask them what is the maximum amount they will lend you so as not to incur LMI.

Once you have this figure, (similar to what Angel said above) this is what you offer your boyfriend for his house (minus of course legal fees,stamps etc). The shortfall between this figure and the valuation figure (or your agreed selling price) can be paid back to him, with interest, remember you will now have 11k in extra money saved fom LMI to pay him interest on the shortfall. Better to him than LMI to the bank.

Hi Kate,
Couple of thoughts……..
Firstly, I have seen plenty of valuations of late coming in lower than expected – although personally I have had a few that have given people a pleasant surprise. IF you know of any comparable sales, even recently (ven if you have to badger a few real estate agents for info on recently sold places) you could submit theses to your lender and ask them to appeal the valuation based on the new information. You would be surprised that with LMI there is always a  'sweet spot' where $500 in the security value, can affect the premium by the same amount almost so it all helps.
Secondly, you mention you are borrowing with a credit union? The one you mention is better than some, but what you read about credit unions 'saving you money' and being 'better then banks' is pure and utter bilge. With the competition in home lending, and plenty of offers of application fee waivers or paid exit fees, I can just about guarantee you the charge for LMI from the (good) major banks WILL be less than a credit union charges – sometimes thousands. SO even if you valuations dont change, it could be a good idea to walk from the CU.
Thirdly, is he a good boyfriend? (ie is it a fair price?)
And finally……if you 'just gotta' remember that LMI premiums are tax deduct able over five years, and make sure all the fees to do with application/establishment costs, LMI etc are assocaited with your invesmtment loan rather than your owner occupied one in orer to maximize tax deductions.

All the best with whatever you decide.

Cheers

Hi Kate,

Definitely make sure you go the eyelids first

WIth LMI premiums its like anything else – all about volumes, and the banks chuck a heap more business the way of the LMI providers than the credit unions. I worked for the NAB a while back, and the difference in LMI between the banks price and what a couple of the credit unions offered (like ADCU & Defcredit – did a lot of work with the armed forces guys) was almost half!
Must admit it is less now. I would imagine if your CU was quoting $5000, the bank premium might be $4500, but it all helps.
By way of comparison put all your details in here and see how it stacks up
http://www.nab.com.au/wps/wcm/connect/nab/nab/home/personal_finance/1/4/1/1

Many credit unions ream their customers (quaintly called members) with account & atm transaction fees major, whereas a all of the major banks have low value monthly fee accounts (or $0 in the case of the NAB, or CBA too if you have a min balance) which adds up to much more than the few dollars you may save on home loan interest each month. Still, if you are happy and somewhere that does not charge you like that I agree – why go elsewhere.
Make sure you check any info to in replies on a public forum Kate. Re the LMI being deductable you will see it says that on the ATO website, where there is a very handy document for property investors. You can get it here
http://www.ato.gov.au/content/00237831.htm

I have pasted the bit on LMI below from page 14 here for you.

EXPENSES DEDUCTIBLE OVER     A NUMBER OF INCOME YEARS
There are three types of expenses you may incur for your
rental property that may be claimed over a number of
income years:
n borrowing expenses
n amounts for decline in value of depreciating assets
n capital works deductions.
Each of these categories is discussed in detail in the
following pages.
Borrowing expenses
These are expenses directly incurred in taking out a loan
for the property. They include loan establishment fees, title
search fees and costs for preparing and filing mortgage
documents, including mortgage broker fees and stamp
duty charged on the mortgage.
Borrowing expenses also include other costs that the
lender requires you to incur as a condition of them lending
you the money for the property – such as the costs of
obtaining a valuation or lender’s mortgage insurance if you
borrow more than a certain percentage of the purchase
price of the property.
The following are not borrowing expenses:
n insurance policy premiums on a policy that provides for
your loan on the property to be paid out in the event that
you die or become disabled or unemployed
n interest expenses.
If your total borrowing expenses are more than $100,
the deduction is spread over five years or the term of the
loan, whichever is less. If the total deductible borrowing
expenses are $100 or less, they are fully deductible in the
income year they are incurred.
If you repay the loan early and in less than five years, you
can claim a deduction for the balance of the borrowing
expenses in the year of repayment.
If you obtained the loan part way through the income year,
the deduction for the first year will be apportioned according
to the number of days in the year that you had the loan.

Cheers