I am purchasing my first investment unit. With what i will owe compared to the value of my 2 properties my LVR is about 87%
This is attracting LMI of about $13000. Should i add my own savings money to get rid of the LMI or should i let it get added into the borrowings and claim it as a tax deduction?
I have paid $300,000 for the unit, then in total with stamp duty and LMI it will be $322000 which i think would erode any equity in the property
Any advice on which way to go with this would be appreciated
Thanks
What is the value of the PPOR and the current loan amount? Also how have you derived the value of the property (i.e. your estimate or valuation)? Also do you have any deposit saved?
TheFinanceShop | Elite Property Finance
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Valued at $400,000 by ANZ valuers. yes i do have cash but didnt use it as deposit. I have used the equity instead of paying a deposit
Current loan amount on PPOR is about $312,000
Hi prospertor
Sounds to me like you have cross collateralised your two loans to get to this figure.
Not sure i would have done that.
A simplier and cheaper strategy would have been to have sent them up as separate standalone loans in order to reduce the LMI as well as the potential issues down the track.
Now that you have gone that route this is too late so i would probably pay the LMI and claim as a borrowing cost deductible over the next 5 years or the term of the loan.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Certainly borrow the LMI – keep your cash in an offset account linked to your home loan.
Hi Qlds007
If i had of put set them up as stand alone would i have had to then pay 20% deposit on the unit cost?
Sorry prospector but that is not the case.
LMI premiums are based on both the total loan amount and the lvr.
It can be cheaper to take out 2 standalone loans at 87% lvr than it can be taking out 1 with a higher loan amount across 2 properties.
Sorry your Banker or Broker didn't explain this to you.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
No, i wish now i hadnt gone through a broker,they were not very clued up and when i arranged an appointment with anz to discuss the structure, they wouldnt talk to me because i was proceeding with the broker.
Still, i should of done some more homework earlier
Thanks for your comments guys
Be surprised how many Brokers / Bankers have no idea how to structure an investment loan and end up costing an investor $$$$.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
prospector wrote:No, i wish now i hadnt gone through a broker,You surely mean "I wish now I hadn't gone through that broker.
Just because most are clueless doesn't mean all are. (from what I see at training sessions etc most are clueless)
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Hi prospector,
As Richard mentioned, your loans were cross collaterised, hence the huge LMI cost. Just doing some quick figures with ANZ LMI, you would have saved thousands if the loans were separate for each security which is how they should have been structured as a worst case scenario.
Also being cross collaterised, the borrowings are mixed purpose which can be somewhat of a nightmare come tax time.
Odds are the ANZ banker would have done the same thing and the result would have been the same.
You have had a bad experience with a broker, but like any profession there are good and bad. People just need to filter the bad ones out until they come across a good one.
Cheers
Tom
Hi Tom
I havent signed any contracts yet
The finance has been approved and contracts are in the post to me.
Settlement date is the 20/11/12
I know i am running out of time on this but i still may be able to discuss with anz before signing any thing
From what you say it sounds like i need to get it right to save money and grief down the road.
Terryw wrote:Just because most are clueless doesn't mean all are. (from what I see at training sessions etc most are clueless)Same as any mandatory cpd conjured up by the OFT.
Tom is a brave man.
Anz docs come from Mumbai and to release the security set up and do them as standalone deals would mean they have to be re-assessed in full.
You might also find the type of valuation they have done needs to be amended.
Even if Anz could understand what you needed the chances of getting it over the line is slim at most.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Terryw wrote:Just because most are clueless doesn't mean all are. (from what I see at training sessions etc most are clueless)
It's scary isn't it.
I went to an accreditation session for a lender that just came onto our panel the other day. I must admit, if that room was used as a sample of the general broker population, then the quality is on the decline.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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Hi there,
While the $13K is tax deductable, it is still $13K outlay for a reduced tax rebate.
I would use your own cash to reduce to an 85% lend and then approach the bank to waive LMI. I went with Citibank who will go to 85% no LMi, and they still have very competitive rates…
At the very least, a 85% should at least be a reduced amount of LMI.
Cheers,
Ged.
But what if the $13k was used to pay down personal debt and then reborrowed…
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
Citibank has the no LMI upto 85% LVR policy but you do need to meet certain conditions. Rates are quite good however the service has to improve.
TheFinanceShop | Elite Property Finance
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I agree it would be really pushing it Richard by the settlement date (especially with Murphy's law always seeming to rear it's ugly head), but the vendor might be willing to push the settlement date out without penalty rates, and there might be ways of saving time with document handling (I know here in Melb, ANZ allow you to pick up documents at their document processing centre and hand them direct to their settlement agent which saves time).
In the end, it might be worth it if it saves a few thousand dollars of LMI, and the heartache of the cross collaterised loan.
Cheers
Tom
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