Blog

Case Study: How Clients Saved on LMI

Lovely young clients of ours with one child were looking to buy a bigger home to get them through the next few years as a family and were able to refinance and purchase in a way that reduced the LMI they had to pay.  Here is their story:

Q.  What was your situation when you first came to Louise?
We had two investment properties each worth below $400K with 80% loans and were renting a townhouse in Canberra.
Q.  Prior to meeting with Louise, what were you hoping to achieve regarding property?
We wanted to stop renting and buy our own place even if it meant getting rid of one of the investment properties.
Q.  What plan of attack did Louise recommend?
She assessed how much we could afford and if it was suitable for what we wanted if we had equity and which, if any, property to sell should I want to extend on what I could afford.
Q. My understanding is that you refinanced your investment property and were able to borrow 90% including LMI? How did this help your overall position to purchase a new home?
We had a unit in Brunswick East that we decided to sell based on her advice (property was not growing and in an area with many other units of a similar style).  We got a quick sale and the proceeds then contributed to our savings for a deposit. (However, we still needed a bit more to ensure an 80% lend against our new owner-occupied property. As that was the bigger purchase, therefore, the Lenders Mortgage Insurance LMI – would have been higher due to the higher loan to value ratio on that property.) Then with the second investment property in Dubbo NSW we refinanced to extract ~$65k in equity and only paid I think it was ~$3k in LMI for Dubbo.

We were able to leverage this money with our savings to purchase our owner-occupied unit in Canberra without having to pay any LMI on it.
 
Q. How did the sums work in terms of borrowing on your investment and then borrowing for your new home?

We tried to avoid LMI where possible for our new home which meant that we might need to pay some on our investment property should we extract the max equity.  As the new interest rate is almost half of what we were paying we weren’t worried about extracting equity on the investment property. Then we could use those funds as they were in a separate loan for owner-occupied usage. We also got a rebate for refinancing which helped pay for the whole process.
We could have afforded a property worth $180,000 more than what we purchased if we maxed out our borrowing capacity but, given these uncertain times, we decided to lower our lending provided we were able to purchase a home that was suitable for our growing family for a least 10 years. However, we were still able to purchase a much better property than we might have if we had kept both investment properties.
Q. Have you achieved a financial/property outcome that has worked for your family? If so, in what way?
Yes, but only for the interim. We found a large unit in a great location which is in the primary enrolment area for the best public schools. We decided that we were going to give it between 10-17 years of paying the mortgage down and hopefully gain a lot of equity in that time. When the kid/s are older, we hope to be in a position where we can move out of the unit into a house in the outer suburbs and possibly keep the unit as an investment.

If you would like to make a time to discuss your circumstances please make a time to chat with me here.
 
With thanks,