LMI

Hi Simon,

Or do you think it’s better to cop a few extra thousand on the loan to keep the cash in your pocket, specifically for renovations?

Short answer is “Yes!” – the risk level rises a bit, but a good reno uplifts the Equity, and likely allows an increased rental too. An extra few thousand of LMI costs little on a week-to-week basis. e.g. let’s say LMI was $3k more than expected (as you went over the 88% mark). At today’s rates (say 5%), $3k extra is $150 a year ($3 a week) in Interest.

Instead of keeping the LMI lower (and maybe needing you to take out a small Personal Loan for the renos), you keep your cash and pay a token amount for the privilege. The one caveat would be that the Mortgage Lender will be keeping a closer eye on you than on someone at 88% – but if your Income is stable and all payments are met on time, this is not likely to be a big issue.

Benny
PS all just my opinion – no advice there !! ;)

Simon wrote:

I am undecided on this as I see benefit in both, however, I am leaning towards the benefit / immediate gains of having the $ to reno etc outweighing the very minor difference in repayments on IO?

It depends on what you’re aiming to achieve.

I work mainly with investors – and a lot of them (particularly those starting out) leverage at 88% + LMI. The LMI is deductible and they can borrow more with less which enables them to be more aggressive with property acquisition.

If you’re looking to hold onto cash for renos – then work out what the end value will be after the renos. That will help work out whether the LMI cost is justified.

Cheers

Jamie

Simon wrote:

think it’s better to cop a few extra thousand on the loan to keep the cash in your pocket, specifically for renovations?

Impossible to answer, I reckon.

It depends on how much cash you have, how much the Reno will cost, how much more will the LMI cost, how much you want to have in cash for a rainy day (should one arrive) etc.

Thanks for letting us know.

For the benefit of all, here is a good post detailing what I think about LMI 👍😎

• This reply was modified 7 years, 1 month ago by  Ethan Timor.