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Which Option is better upfront or LMI on an investment property?

Discussion in 'General Investing Discussion' started by thirunachi, 10th Mar, 2011.

  1. thirunachi

    thirunachi New Member

    29th Dec, 2009
    Perth, WA
    We plan to invest in a property and our broker has come up with 2 options and asked us which one we would like to go with?
    1. Refinance asking for a pre approval of $450,000 and we will have to pay approx $31,500 upfront for the property we are investing.

    2. We stay with same bank where we have our existing loan and request a pre approval for $450,000 and add on approx $12,000 in lenders mortgage insurance. This way, we will not have to pay any money from our own savings.
    I am on 40% Tax bracket and I've $31,500 in my savings under offset of my existing home loan. Which of the above option is better to go with? if I opt to go with LMI, then some of 12K can we recovered from my tax and keeping the 31k in home loan would save some interest on my own property home loan. Is there any spreadsheet already available to do this analysis?

    FYI, I am paying around 6.3% interest on my existing home loan (i.e where the 31k is in offset)

  2. billyblanks29

    billyblanks29 New Member

    7th Aug, 2012
    Melbourne, VIC
    Home Loan Pre Approvals

    I would go with option 1 refinance as it avoids you negative gearing further and borrowing more from the bank. If you want another option for a more effective home loan pre approval try here.
  3. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    You should really be getting some tax advice.

    If you used the money in the offset that you would mean your non deductible interest would increase.

    I would suggest you borrow 105% for the investment, avoid cross collateralising the loans - and avoid paying LMI if possible.