Hi All,
I trust you've all been well.
Basically, I currently have the below portfolio serviced with NAB. The loans are cross-collatorised and I paid LMI when I picked up the IP 6 months ago.
Where it gets tricky is:
- I picked up the IP well below market price, and after capital works I would say a conservative estimate of value is 360,000;
- Despite this, NAB say they cannot re-evaluate and their value remains at "Purchase price".
- I am in the midst of selling my PPoR (for 420,000) and once sold, am hoping to clean up my investing structure so I can build my asset base cleanly.
The point of clarity I'm after is:
- If I sell my PPoR I assume NAB may attempt to block it as the IP (based on their evaluation) can't be a stand alone security?
- How should I handle this without having to use any of my cash gain from the PPoR as payment to the IP loan?
- Should I use this as an opportunity to refinance to a non-major lender?
Your guidance is appreciated as always.
Harry
PPoR
– Debt: 270,000
– Value: 360,000
IP
– Debt: 310,000
– Value: 292,000
Total
– Debt: 580,000
– Value: 652,000
– Ratio: 89%
1. You have paid LMI and therefore have LMI credit. Do the numbers before freely considering a refinance. Thats not to say that future properties cannot be with another lender.
2. If the properties are cross securitised and you do sell one then NAB will need to order a valuation to ensure that they have adequate equity against the current property.
3. Order an upfront val to determine the value of the IP. Its free and will give you a good idea as the plan of attack for the PPOR and subsequent IP purchase.
TheFinanceShop | Elite Property Finance
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Thanks Shahin, appreciate the response.
I've consulted with NAB and their position is:
1. The LMI purchased (8k) secured against a debt ratio of 89% may need to be repaid if I sell the PPoR, even if the debt to equity ratio remains at 89% for the IP alone.
2. I cannot order an upfront valuation to determine the value of the IP – they will only do this once I advise them of sale of PPoR. I've asked whether they can order this if I even offer to pay but there seems to be no option on this.
Hopefully the LMI will stay intact using the IP as security alone (if their evaluation sits around the 360k mark which I think is reasonable) but I all boils down to their evaluation – frustrating that they can't order one without action being taken though.
Jeez, They seem a bit inflexible to me. I would push for the revaluation of the IP immediately so you know where you stand with them. If they wont allow perhaps its worth trying a valuation through their broker channel Homeside which any broker can order upfront. That is on the basis that Nab will accept the Homeside ordered val which I am not 100% on but think they would. get the broker to check with their BDM beforehand.
Marty McDonald | Mortgage Experts
http://mortgageexpertsonline.com.au/
Phone MeHarry never heard such nonsense in my life.
Just get the broker who did the loan for you to order a NAB valuation now and don't wait until a week before settlement as you could find that you are in default as the purchaser and liable.
If you think you will be buying again get the Bank to hold a Term Deposit as security on the settlement so as to maximise the deductibility of the interest.
Be an idea to put the plan into action now as NAB are taking forever on mortgage variations.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
the dangers of crossing securities. they have you over a barrell and you will be at a disadvantage if you pay down an ip loan. you will end up paying more tax.there is a possible solution to maintaining deductibility involving loan agreements privately, but probably the term deposit as security is the easiest option.
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
Harry,
A few others have correctly outlined that the first port of call is ordering a valuation for your IP so you know where you stand if it is sold and what debt you would have remaining against your PPOR.
If you mail me the address of your property, year it was built (approximately), condition of the property (below average, average, above average, way above average), then I can send you a valuation to use as a guide so you can come up with a strategy.
If they continue to treat you like that at the NAB, I would suggest you simply tell them you are going to refinance immediately (assuming you haven't defaulted on loan payments and have some equity in the properties) and watch them change their attitude pretty quickly. As Richard said, it is nonsense that you are unable to order a valuation for a property that they have security over.
Dave Ward | Geronimo Finance
http://www.geronimofinance.com.au
Email Me | Phone MeProperty Investor, Property Investment Expert & Advisor, Finance Expert & Strategist
Richard hit the nail on the head. Whatever you do don't let them pay down the IP loan even if it means giving them cash security.
Have you considered moving the IP elsewhere, based on your valuation the IP value of $360 k.
DaOne | Oras Finance - Your Local Mortgage Broker
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Dear HarryMarcus,
Based on the LMI is with which insurance, you can refinance the loan with another lender within one year of LMI and they do not get charged new LMI.
Please let us know what finally happened.
Sorry Arun that is absolute rubbish.
If you refinance from one lender to another and the lvr is the same LMI will be paid again with no refund.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
This is a clear example of why you need a good broker on your team. A mistake like this will cost you thousands.
The word "mortgage" is spelt incorrectly (he's got it written as "mortagage") on the main banner on Arun's website. Just sayin'….
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Dear Harry
The proof is in pudding. look at the link below.
http://www.qbelmi.com/pg-what-is-LMI.seo#Is-LMI-refundable
I absolutely agree with Richard Taylor and jmsrachel in previous comments that the broker should know and it may cost thousands otherwise to clients.
Good luck in getting NAB to send you a cheque for the refund.
Remember the LMI is not taken our for your benefit but for the lenders and you incur the cost.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I personally haven’t seen it refunded when a borrower has moved to another lender.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Dear Harry,
Please look at the article below. Just search for portability of LMI in search engine.
http://spionline.com.au/home/3453-portability-could-push-lmi-premiums-up-genworth
Nor me Jamie.
<span style=”line-height: 1.5em;”>Went to a National Conference a fortnight ago attended by the Heads of Mortgage Lending for the top 6 Banks and the question of LMI portability / refund was bought up.</span>
<span style=”line-height: 1.5em;”>All of them </span><span style=”line-height: 1.5em;”>unamoniously stated it wouldn’t happen and even if did they would not be refunding any part to client.</span>
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
The article seems vague and appears to be a bit of a filler with no substance. Good luck trying to get a refund.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Yep definitely dont think you can get away with not having to pay LMI again if you switch to another lender. It doesnt make sense that you could as LMI insures the lender. So different lender new LMI which is cost passed onto you. if you stay with the same lender then you have already paid their insurance premium and therefore a change in structure could have the premiums varied.
Its unfortunate that you had your properties crossed when LMI is payable as this would have been charged on the $580k total rather then LMI 85% PPOR and LMI 90% IP. Second way would have worked out to be cheaper in LMI cost. Now only 6 months down the line and you’re stuck.
If you’re selling the PPOR are you planning to buy another? At what value? Have you discussed portability of replacing the new security with the old PPOR in the cross? Just an idea for now. You might still want to split the properties in which case knowing what your IP is currently worth upfront will be necessary. Might not help you with LMI if you go to another lender. But NAB should be able to order your valuations upfront maybe past 6 months or get a broker to do it.
Numbers I see in the new cross with new PPOR + IP
PPOR New value : $400k
IP (new valuation): $360kNew ratio: $580k/$760k = 76% LVR (NO LMI)
OR in order to split up the loans
you only need to pay off an additional $22k to get the IP to sub 80%LVR (if valuation is at $360k) and with $130k left over (leave out an additional amount for selling costs) you only need $100k (incl stamps) for a new $400k purchase at 80% LVR. This is assuming that is the value you are after. You will have to work out the numbers to see if paying down 22k on the IP is worth it or repaying LMI (pro rata). Considering you have already forked out on LMI I would suggest staying away from having to pay anymore LMI and un-cross asap.-
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