Too early to upgrade PPOR?

[mandimoo]

Hi Guys and Girls,

We bought our PPOR 2.5 years ago, were intending to stay here for 5-7 years, weren't intending to have another child. Anyway we did have another child and our 4x2 has become quite squashy. I wasn't really looking to buy but I happened to find a house that we really like, is much bigger and better than our current home (and on the market at $850,000 compared to the $550,000 we bought our place for).

We have 2 IPs which we used equity in our PPOR to buy and my husband has told me that if we were to sell our home we would need to refinance the IPs against the new house instead and would have to pay LMI all over again. Considering that one of our IP's we bought a year and a bit ago and the other only in June - we sure as friggin hell don't want to have to pay LMI all over again.

If we sell our properties I dont feel that we held onto them for long enough to break even on the fees like stamp duty. One of our properties is worth more than we bought it for, both are pretty much neutrally geared. My husband's pay has increased by $100,000 pa since buying the house we are in and we know that we could afford the upgrade if it werent for our IPs.

My question is, is it way too early to upgrade our home and will we have to pay LMI all over again if we keep our investment properties?

Thanks!
Amanda

 

[Rolf Latham]

Hi Amanda

a lot more data required: )

Income is only one part of the equation.

current values and loan amounts would be helpful pls

ta
rolf

 

[Aaron_C]

Why do you have to pay LMI all over again? Are you cross collateralised?

 

[mandimoo]

Hi - thanks for replying!
I'm not sure if this is definitely the case but my husband says that this is what we were told earlier in the year.

The loan amounts are high as we borrowed the full amount for each IP plus stamp duties etc.

PPOR - Purchase price $550,000, amount owing $375,000
1st IP - Purchase price $305,000, amount owing $324,500
2nd IP - Purchase price $390,000 amount owing $420,000

I expect the properties might sell for $575,000, $350,000 and $380,000 in the current market but I don't really know....

The only one that will have increased "valuation" wise would be the 1st IP which we got for a bit of a steal and have spent a little bit of money updating.

Do you need more info?

Amanda

 

[Aaron_C]

Which lender are you with? The way you have phrased it (and your current conundrum) suggests that you are cross collateralised. If you sold the house for $550,000, you would have to pay down the entire $375,000 plus have IPs #1 and #2 revalued. Assuming your valuations are correct for them, then you probably won't have to pay LMI again on that part of it since you have already paid more than enough. You will, however, have to pay back at least $120,000 into the two IPs to keep their LVRs at 90% (maximum LVR for most lenders). This will leave you with about $45,000 from the sale of the PPOR in your pocket (after agent commission) for the new PPOR - so your new purchase will most likely require LMI all over again.

Would suggest you structure it a bit better next time as this is the perils of x-coll. Larger loan amounts = higher premiums not only in absolute terms but as a % of the loan itself which gives you (nor the lender) any additional benefit but it just lines Genworth/QBE's pockets.

 

[mandimoo]

He came over today and as it turns out my husband was wrong (thank goodness) and we do not need to pay LMI all over again, just increase the amount. We have been told that it is doable but we either need to sell this house or buy the new property as an investment for the time being, which I think we prefer to do so that we can buy without a subject sale which would probably not be the best position to be in when trying to get a discount on the property price. Also gives us time to sell our home while we are still living in it and claim tax deductions for the interest on the new property while we rent it out