The saying " There are no stupid questions " certainly applies here .
As far as I know , the rule is if you borrow over 80% banks will hit you with mortgage insurance . So it makes sense that if your second loan is over 80% , then it will trigger the insurance again.
You could combine both loans but if you're over 80% the situation still exists . I've always avoided the 80 % but I'm aware it is pretty expensive . How much is it in your case , you can express it as a percentage of your loan if you like.
Your situation is a bit unusual as you are renting out your original place of residence.
Normally , the best strategy is to pay off your PPOR first . The main reason for this is that apart from the equity giving you borrowing power , it means that you are getting a return of approx 6% ( mortgage rate ) on your money.
The second reason is that the losses on a rental are tax deductible while they are not on the PPOR . Essentially it's easy to calculate the difference thus demonstrating the return you are getting for your money.
It is well worth spending a bit of time on the phone speaking to other banks. While 80% is generally a pretty firm rule , they may offer you other incentives to come across . Even if it proves that it's not worth changing banks because of the costs , it will be a good learning exercise for you.
One more thing . Make sure you have an offset account . If you have good cash flow it can save you quite a bit of interest on your loan .
