All Topics / Help Needed! / Avoiding mortage insurance

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  • Profile photo of pman1971pman1971
    Member
    @pman1971
    Join Date: 2007
    Post Count: 10

    Hi,

    I have just bought a property fro $530K in Sydney. I have another investment property which was last valued at $415K with $250K owing.

    Thus my equity is 80% of $415 ($332) – $250K =  $82K. As I need $20K for stamp duty I am really only left $62K. Putting thoose figures through the Wizard Purchasing Costs Calculator the estimated mortgage insurance is $6K.

    Now obviously I don't want to pay $1 for an unrecoverable cost and would like to know what options I have. Do there exist financers who will take on high income earners and waive mortgage insurance? Are there other options?

    Thanks Petros

    Profile photo of JETTJETT
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    @jett
    Join Date: 2005
    Post Count: 31

    To answer question I really dont know.

    I might have misunderstood your maths but the way I see it.

    You have property worth 415k owing 250k and you want to buy a property worth 530k.
     
    So properties worth 945k X 80% = 756k – debt 250k = 506k 80% lend

    24k + cost to do the deal

    945k X 85% = 803k -250 = 553k 85% lend

    this would cover loan and costs

    Profile photo of Kipper57Kipper57
    Member
    @kipper57
    Join Date: 2006
    Post Count: 252

    One of our lenders offers disounts on LMI if have 5 % genuine savings so  you would not have a problem

    Profile photo of XeniaXenia
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    @xenia
    Join Date: 2002
    Post Count: 1,231

    That's a specific finance question that I can't answer but my attitude is "give me the money" with or without mortgage insurance. It is a small cost compared to the huge cost of not aqcuiring properties.

    Profile photo of BDMBDM
    Participant
    @bdm
    Join Date: 2002
    Post Count: 93

    Hi Pman,

    Mortgage Insurance usually is triggered by the LVR – loan to value ratio of your borrowings – and usually kicks in at or around the 80% mark, depending on the lender.  Therefore if you keep your total LVR under 80%, then there probably will not be any mortgage insurance.

    How do you keep the LVR under 80% ?  Either borrow less, or save more for a deposit, or wait until your current equity is slightly larger ( which relates back to "borrowing less").

    I hope this helps,

    Thanks,

    BDM

    Profile photo of brettc4brettc4
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    @brettc4
    Join Date: 2007
    Post Count: 20

    I am glad others are discussing this as I am trying to come to grips with this. I am currently reading 'More Wealth from Residential Property' by Jan Somers, and her discription of LVR seems to open up a number of possibilities which I believe are also being stated above.

    Here is my situtation:
    Current House Value $300,000. Own outright
    Potential Investment Property $400,000.
    Savings for fees etc $25,000.

    In my case, if I buy the Investment property and take out a mortgage of $400,000.
    My LVR is mortage / (Current house + Investment)
            : $400,000 / (300,000 + 400,000)
            : $400,000 / $700,000
            : 57%

    So from what I have read above, although I am borrowing the entire value of the property, I would not have to pay Mortgage insurance.

    Is that correct??

    Thanks

    Profile photo of thornbird8191thornbird8191
    Member
    @thornbird8191
    Join Date: 2003
    Post Count: 9

    brettc you are correct if you put down both properties as security.

    Profile photo of Kipper57Kipper57
    Member
    @kipper57
    Join Date: 2006
    Post Count: 252

    Or take equity out of one by way of a loan increase with a split and the use it for the other saves cross collateralising

    Profile photo of Canberra BrokerCanberra Broker
    Participant
    @canberra-broker
    Join Date: 2007
    Post Count: 1

    Hi Pman.

    There are some lenders (Westpac for example) that will waive LMI up to 85%…. 

    Otherwise look for a lender that is capable of taking on the risk themselves, ING do this for example. (they do this for a price, usually better than the insurers)….

    Profile photo of vovchikvovchik
    Participant
    @vovchik
    Join Date: 2007
    Post Count: 9

    ING could be the way.  I just wrote one loan where client paid zero insurance on 85% lend.  Also Homeside are very flexible on their policy and depending on the deal may be able to waive some LMI.  Talk to your broker to discuss the possibility.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Irrespective of the LVR the way that you structure the loan is more important.

    Many new brokers who are not property investors themselves do not understand the mechanics of cross collateralising loans and the potential long term problems this course of action could cause.

    Richard Taylor | Australia's leading private lender

    Profile photo of pman1971pman1971
    Member
    @pman1971
    Join Date: 2007
    Post Count: 10

    Hi all,

    Thanks for the great advice!

    My mortage broker is going through Homeside and is pretty certain he will get LMI waived. He told me that he can get it through Homeside, Commonwealth and ING. I think it does depend on the strength of the application, size of the loan and the relationship the broker has with bank.

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