Home Loan: Low Interest with LMI Vs High Interest with No LMI?

LMadMax0211 on 29/04/2022 - 22:36

Hi all,

Hope you all can help me through my thinking, first time homebuyer.

We have enough for 15% down payment plus stamp duty and fees. This leads to us having to pay around 16k in LMI with our current lender who we have been approved. (Tictoc). 1.89%

Our dilemma is that 86400 offers no LMI loan but with 2.49%.

If we think that we can get make extra payments during the first year to 80% LVR and the refinance to lower rate (assume tictoc same rate) with no LMI, does it make sense to go with 86400?

My math says we save around 12k this way but maybe I am missing something?

Thanks for all your help

Financial Home Loan

Comments

  • AndyC1 on 29/04/2022 - 22:40
    -1

    Go with the cheapest and hope your assumptions and spreadsheet values and calcs are correct.

  • Pelicannn on 30/04/2022 - 00:45
    +3

    If it's the difference between between a potential $12,000… spend the couple hundred and speak to a financial advisor who can give you the exact answer.

    However, with my very quick maths (not entirely correct as it's assuming a lot + IT'S LATE) (and unsure on your loan size), yes… you are significantly better avoiding LMI, especially that much. As an example because I don't know your exact factors:

    On a 500K loan (2.49% / 20y) - $2650 / Mo Repayment
    On a 516K loan (1.89% / 20y) - $2584 / Mo Repayment

    You're going to save $66 a month by going with the 1.89% loan on a 20 year loan. Which equates to $16,000 (coincidence only) less in repayments over 20 years. As far as I am concerned your break even point is when the extra interest charged from a higher rate exceeds the $16,000 extra in LMI, which in this scenario would occur after approx 9.5 years of the loan.

    Which means, without a doubt if you can make the repayments to <80% and then refinance to a lower rate in the next 9 years you are better off with the 500K at 2.49%.

    Also rates are definitely going up. Doubt you’ll find 1.89 in 12 months time so save yourself the LMI because that 1.89 will be 2.49 before you know it.

    • stirlo on 30/04/2022 - 11:28

      Loans are normally 30 year not 20.

      • rektrading on 30/04/2022 - 11:59

        Have a plus.

      • Pelicannn on 30/04/2022 - 12:05

        That only helps OP case to not pay LMI because the extra repayments would be even less per month.

        I also clearly stated I assumed a lot given OP was vague with number in the post.

    • MadMax0211 on 30/04/2022 - 20:31

      Thanks much - 30 year and around 870 Loan so make your point stronger I think. So save around 200 a month going with lower interest rate when all said and done.

  • jjjaar on 30/04/2022 - 01:22

    and the refinance to lower rate

    Unless you fix it now, rates are about to start increasing. You could be two months in and your 1.89% could be at 2.49%. Similarly, the 2.49% could be 2.99% in 2 months.

    I would go for no insurance.

  • garetz on 30/04/2022 - 08:20
    +1

    LMI is almost never worth it, it is added to your loan which compounds each year, over time that 16k will become much higher than the difference of the interest rates requiring payments.

  • MadMax0211 on 30/04/2022 - 09:01

    Thanks all. Loan size is 867k after deposit and fees without LMI and +16k with LMI.

    Worked with 2 brokers who were not much help. Found no LMI option myself.

    BOQ has $1LMI but 2.79%.

  • Mulga Bill on 30/04/2022 - 09:16

    (not personal advice just my math) 2.49% - 1.89% = 0.6%…assuming this margin stays consistent over time* then $860k x 0.6% = approx $5,000 extra interest each year (this will reduce slightly each year as the balance comes down due to P&I repayments)

    So from what I see If someone doesn't refinance in the first 3 years they would be better off with LMI and a lower rate. There are lots of variables though, what if tictoc increase rates to 2.49% and 86400 stay the same for instance.

    *rates change independently so this margin may change for better or worse

    If someone uses an online "repayment calculator" that has an amortization table they can run both scenarios and see the exact numbers.

    • MadMax0211 on 30/04/2022 - 20:27

      Thanks that makes sense

  • daleroy1234 on 30/04/2022 - 10:39
    +1

    With interest rates more than likely going to rise, factor in the possible drop in value of the property. This will make it harder to get to 80% LVR, even with extra repayments.

    • rektrading on 30/04/2022 - 12:04

      There is $2T to $40T cash slushing around the 🌎 👀 for a home (hard assets).

      People will pay cash for the properties if they've to.

      • MadMax0211 on 30/04/2022 - 20:27
        +1

        Feel l more likely everything else will become more expensive vs house price fall…:

  • mortgagebroker on 30/04/2022 - 13:39

    You are correct.
    Do the same for my clients in this situation.
    Doing one know where 9 months later, I am able to refinance to a cheaper option.

    Have a look at St.George, UBank who both do 85% no LMI or $1 LMI at good rates.

    Have you looked into the FHLDS at all?

    • MadMax0211 on 30/04/2022 - 20:24

      Thanks. Haven’t looked into FGLDS. St George seems to have 850 limit. Checking Ubank.

  • El-Rhi on 30/04/2022 - 15:58
    +1

    What is your occupation? Some lenders go up to 90% LVR with no LMI for certain occupations

    • rektrading on 30/04/2022 - 16:20

      Some lenders go up to 90% LVR with no LMI for certain occupations

      Yes, the market deserves a good rekt.

      • MarsTitan on 30/04/2022 - 16:35

        ANZ and CBA do 95% LVR with no LMI for medicos.

        • rektrading on 30/04/2022 - 17:23
          -2

          Banks have a licence to issue unlimited debt. The financial world got rekt in 2008 because of their irresponsible banking practices.

          They'll screw up again if they continue to give out debt to borrowers that can't afford a proper deposit. It will be something truly spectacular when market finally gets liquidated.

          • El-Rhi on 01/05/2022 - 09:21

            @rektrading:

            Banks have a licence to issue unlimited debt

            How? Banks have minimum capital and liquidity requirements which constrain the amount they can lend. And there are funding constraints as well.

            It will be something truly spectacular when market finally gets liquidated.

            You mean like this?
            https://www.reddit.com/r/FantomFoundation/comments/uesgyr/in…

            Good thing the property market doesn’t operate like that

            😂

            • rektrading on 01/05/2022 - 10:38
              -1

              @El-Rhi: The Federal Reserve removed the reserve requirement on deposits to zero on March 26, 2020.

              The RBA removed the SRD on September 27 1988.

              Legacy banks have for a long time issued debt out of thin air without holding enough cash to prevent a bank run.

            • rektrading on 01/05/2022 - 10:44
              +1

              @El-Rhi:

              You mean like this?
              https://www.reddit.com/r/FantomFoundation/comments/uesgyr/in…

              Good thing the property market doesn’t operate like that

              I haven't read that one.

              It doesn't come as a surprise that 💩coins are trying to play games using the TradFi handbook of scams.

              Mr 🐳 Roosh deserves what they get for not having proper risk management in place for a loan that big.

    • MadMax0211 on 30/04/2022 - 20:34

      Finance but doesn’t qualify without accreditation. Not a doctor or accountant.

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