Forums / Getting Technical / Finance / How do others avoid paying mortgage insurance?

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  • Profile photo of moonrockmoonrock
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    @moonrock
    Join Date: 2003
    Post Count: 5

    Hi All!
    Great sunny day here in Sydney.
    I have recently enquired about finance for property investing and was told that I would need a 20% deposit to acvoid paying mortgage insurance. Is this standard practice or should I be shopping around for finance that is less rigid in this regard?
    Any advice appreicated.
    Regards
    Moonrock

    Profile photo of Mortgage HunterMortgage Hunter
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    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    This is pretty standard.

    As well as paying the LMI anything over an 80% lend is also scrutinised by the mortgage insurers. They are often tougher on the deal than the banks are!

    There are products which aren’t mortgage insured but you will pay a premium for this privilege.

    Sorry I didn’t have better news!

    Cheers,

    Simon Macks
    Mortgage Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of Buzz LightyearBuzz Lightyear
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    @buzz-lightyear
    Join Date: 2003
    Post Count: 43

    Just thinking aloud…how about a 80% loan with your financial institution and a second mortgage provider for the rest. Assuming servicing ratio/income is still OK.

    James

    Profile photo of Mortgage HunterMortgage Hunter
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    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Pretty hard to find people willing to take a second mortgage. Almost impossible if you had no money in the deal yourself – I don’t know who would do it for you at rates under 20%!.

    Some lenders will lend 95% and allow you to borrow the LMI on top of that – effectively 97% lend.

    Cheers,

    Simon Macks
    Mortgage Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of moonrockmoonrock
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    @moonrock
    Join Date: 2003
    Post Count: 5

    Thanks Simon and James for your advice and comments. Given that others seem to be making deals with very little money down, I assume they are paying mortgage insurance.
    Cheers
    Patrick

    Profile photo of FWFW
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    @fw
    Join Date: 2002
    Post Count: 478

    Hi Moonrock
    I’ve yet to find any lend above 80% LVR that doesn’t involve mortgage insurance. Quite often even below that level, the loan is still mortgage insured, even if you don’t pay the premium.
    As for loans without LMI, they are around, I’ve found a couple at 80%, but mostly you’re looking at 75% LVR or less.
    It probably all comes down to numbers. I borrowed at mostly 90% initially, even with the LMI premium, because the LMI only cost a couple of $1000, whereas supplying another 10% to avoid it cost me $15000. So borrowing more spread my funds further.
    However that can’t go on forever! Even if your serviceability holds up and you still have deposits, at some point the mortgage insurers will consider themselves overexposed and pull the pin on you anyway. About the only way to avoid that is to buy properties in different areas. I’ve been told I can get LMI if I buy in Tassie, but not in Melbourne.

    Keep smiling
    Felicity 8-)

    Profile photo of Mortgage HunterMortgage Hunter
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    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    LMI isn’t expensive on cheap deals.

    Other people draw a 20% depsosit plus costs from existing equity and then take 80% loans. This results in 100% lends with no LMI.

    When the property appreciates sufficiently there is the equity to do it again.

    Cheers,

    Simon Macks
    Mortgage Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of moonrockmoonrock
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    @moonrock
    Join Date: 2003
    Post Count: 5

    Thanks Felicity and Simon,
    It’s really helpful to hear about different ways of dealing with this issue. I can see how incurring the LMI would enable funds to be spread further. The 100% lends by drawing on equity to fund the deposits plus costs also sounds a great idea, though it would obviously crank up my own mortgage.
    Thanks again.
    Patrick

    Profile photo of eklein11651eklein11651
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    @eklein11651
    Join Date: 2003
    Post Count: 4

    We have 500K in equity over 4 houses, valued at $965K , run own electrical contracting business, 3 kids and making profit, used equity from own home for deposits and costs for 2 houses but 3rd required low doc , which then required 20% plus costs in cash . Via re-draw and savings we went ahead. reason for low doc was servicability ??? First 2 properties are positive by $150 per week, P & I loan. Next will be wrapped , as has built in profit of $30K by buying right, and we will take the cash in a yr or 2. Would love to use more of our equity for 100% plus loan deals, as we only do it if it works positve, but servicability seems to hold us up, we have so many discretionary expenses that we feel it is no where near an issue, yet the only way to move on is pay more tax !
    Any thoughts as to how we can do this smarter and use equity again? Eric
    [:D]

    Profile photo of salacioussalacious
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    @salacious
    Join Date: 2003
    Post Count: 373

    Hi, How would you calculate LMI on several properties?
    Dom[;)]

    Profile photo of Mortgage HunterMortgage Hunter
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    @mortgage-hunter
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    You will need to speak to a lender or broker to calculate LMI premiums.

    I can give you an indication if you provide me the info.

    Cheers,

    Simon Macks
    Mortgage Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of eklein11651eklein11651
    Member
    @eklein11651
    Join Date: 2003
    Post Count: 4

    So no one has a suggestion ??
    We are so far from being a risk, it amazes me that anyone can get a loan at all. We have solid credit rating and history , plenty assets , all earned and paid for, enough spunk to take on a few investment properties & still come out way positive , yet by choosing to keep tabs on our income level , for our benefit…we somehow appear a risk . I know low docs service this part of the market , but they restrict access to equity in our home for use as deposits….any suggestions how to get beyond this ??
    Eric[8)]

    Profile photo of TerrywTerryw
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    @terryw
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    Really, there is no way around paying LMI on over 80% lends. There are lenders out there that do lend more, (eg bluestone, Liberty, GE, Peppers) but they all charge higher interest rates.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of ErikaErika
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    @erika
    Join Date: 2002
    Post Count: 151

    Ho All
    We bank with CBA and have pushed them to 85% without LMI, we went to the bank with our business plan talked alot and eventually got 85% so it can be done but they dont like it. Other thing is banks may be getting more stricter with money now than they used to be what with talk of the property market maybe peaking.

    Profile photo of Nat RNat R
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    @nat-r
    Join Date: 2004
    Post Count: 224

    Erika.. LMI will be payable on your loan, I can only assume that the CBA has chosen ot pick up the tab for you.

    The Reserve Bank makes it very difficult of banks to lend more than 80% without LMI by imposing a higher capital charge on the banks balace sheet. The non bank lenders chose to use LMI on every loan (but only charge the borrower for over 80%) as it allows then to lower theri cost of funds in the wholesale market.

    Profile photo of maxhugenmaxhugen
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    @maxhugen
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    Post Count: 21

    G’day from another Sydneysider!

    Yes, it’s true that almost all lenders require LMI if LVR > 80%. It’s tied up with APRA and rules on prudential lending.

    Cheers, Max

    Alpha Financial
    Residential & Commercial Loans
    02 9560 3061

    Profile photo of Mortgage HunterMortgage Hunter
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    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Well I can honestly say that I once wrote a 95% loan with less than 6 months genuine savings for a $500 000 property where the bank chose not to have LMI at all.

    Just the once though!

    Cheers

    Simon Macks
    Mortgage Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    Simon

    That reminds me, I did a 95% loan with no LMI.

    I had a client that purchased a unit, the valuation came in at 20% more than purchase price and the bank lent him 95% wihtout mortgage insurance. So it is posisble if you can get a good bargin (very rare).

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Nat RNat R
    Member
    @nat-r
    Join Date: 2004
    Post Count: 224

    Terry …that is example is not a 95% lend from the bank’s point of view…the way they see it they lent 80% of the value.

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Mine was a genuaine 95% of purchase price and valuation came in the same!

    Cheers,

    Simon Macks
    Mortgage Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

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