first IP – which scenario would you choose?

Hi All,

So my wife and I are in the process of purchasing our first IP – using the equity in our PPOR – our offer has been accepted and we are in our 5 day cooling off period – with 2 days to go – then subject to pest&building – we have unconditional approval from NAB to release our equity – less our 20% equity threshhold.
Our Broker has advised the following scenarios, to be honest not sure which to choose – we would like to purchase again within 6-12 months.
Im really unsure weather to go with ‘B’ was thinking LMI from a tax perspective would be a benefit, I mean how much can you claim back of LMI?

Scenario ‘A’ – borrowing 90% – Ok so borrowing 90% means we can capitalise the mortgage insurance and reduce the mortgage insurance costs down for you.
In this scenario we have the following:

Purchase price : $530K, + stamp duty and other costs = $551K needed for the purchase.

The bank will lend $477K (+ LMI on top). LMI would be $9,300 approx.

In this scenario we would have $551K needed to complete the purchase less the funds from the bank of $477K, meaning a further $74K is needed. $60K or thereabouts will be coming from NAB’s increase, meaning $14K from your personal funds.

Versus scenario ‘B’ – borrowing 95% – In this scenario, borrowing 95% the Mortgage Insurance would come off the loan amount.
So the 95% figure would be including Mortgage Insurance.
So the total loan would be $503,500.00

The purchase price and costs would not change, it would still be at $551K.

LMI costs for this would be $24,872.00
Meaning the bank will be able to lend out $478,628.00

In this scenario you would need to contribute the difference between $551K and $478,628 which = $72,372. Again $60K approx. will come from the NAB increase. Meaning you have to place in about $12,400, give or take some funds.

So while you are forking out slightly less in scenario B, the interest you will be paying over the course of time works against you.
Yes you can claim the mortgage insurance back, but your loan would be around $20K higher in scenario B.

By doing scenario A, you have more equity to begin with also, as the loan sits at $486K rather than $503.5K.

Thanks in advance for your help!!

• This topic was modified 9 years, 2 months ago by  want2livethedream.