The Lenders Mortgage Insurance trap hurting Aussie budgets

Monika Gudova   |   29 Nov 2018

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Thousands of Australians refinance their home loan each year^ on the hunt for a lower home loan rate, and in result, more money in their back pockets.  

But with Lenders Mortgage Insurance (LMI) weighing on the minds of wishful refinancers that haven’t built up enough equity in their home to qualify for an LVR of 80% or lower, Mozo Property Expert Steve Jovcevski has called for an end to “double dipping” on mortgage insurance.

“With billions of dollars in loans attracting mortgage insurance, borrowers who haven’t built up 20% equity are staring at the financially painful prospect of paying LMI twice,” he said.

“It’s time for lenders to act to protect their most vulnerable borrowers. Giving people the ability to transfer their insurance to a lender with a more competitive interest rate will significantly improve their chances of building equity in their home.”

RELATED: First home buyers optimistic about buying a property, says Westpac

Jovcevski also noted that if you have less than 20% equity on your home and have already paid LMI once, “the news of falling property prices is your worst nightmare.”

“Getting to 20% equity is the goal of all first home owners, but declining prices put paid to any opportunity they have of refinancing at a cheaper interest rate without being slugged by LMI a second time.”

Lenders Mortgage insurance, which is a one-off payment that protects lenders in the event you default on your mortgage, was charged on 1 in 5 loans in the last financial year. It's a cost that can stack up to six or more months of mortgage repayments, and Jovcevski has long been a proponent of making LMI portable, or for refunds to be more readily given

“It’s time lenders allowed this insurance to be transferred across loans without penalty,” he said.

“Making this simple change to lenders mortgage insurance will go a long way to ease the cost of living and significantly reduce the risk of defaults.”

If you’ve weighed up the pros and cons and decided that refinancing is right for you, your next step is looking around for the low rate home loan of your dreams.

Check out some great offers below, or head to our home loan comparison tool for a wider selection.

Variable rate home loans - rates updated daily

  • Essentials Variable 80

    Owner Occupier, Principal & Interest

    3.64% p.a.

    3.66% p.a.

    A low-rate home loan that could save you thousands. No monthly or ongoing fees. Unlimited additional repayments. Unlimited free redraws with no minimum redraw amount

    • 3.64% p.a.

    • 3.66% p.a.

    • $520

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $50,000

    • $2,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

  • Discounted Variable Home Loan Premium Plus Package

    Owner Occupier, Principal & Interest

    3.99% p.a.

    4.38% p.a.

    Experts Choice - Australia's Best Customer-Owned Banking & Home Lender of the Year 2018

    • 3.99% p.a.

    • 4.38% p.a.

    • $0

    • $395.00 yearly

    • $0.00

    • yes - free

    • yes - free

    • yes

    • 95.00%

    • $150,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

  • Discounted Home Value Loan

    Owner Occupier, Principal & Interest

    3.59% p.a.

    3.61% p.a.

    Discounted rate for the life of the loan. A relationship manager to help you through the application process.

    • 3.59% p.a.

    • 3.61% p.a.

    • $150

    • $0.00

    • $300.00

    • yes - free

    • yes - free online

    • no

    • 90.00%

    • $50,000

    • $7,500,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

  • Basic Home Loan Special

    LVR<80%, Owner Occupier

    3.65% p.a.

    3.66% p.a.

    A Basic Home Loan which offers a competitive interest rate and other features to make your home or investment loan more affordable. No establishment fee until 31/12/2018. Option to fix full loan or split between fixed and variable. Redraw available.

    • 3.65% p.a.

    • 3.66% p.a.

    • $0

    • $0.00

    • $250.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $10,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

  • UHomeLoan - Discount Offer

    Owner Occupier, Principal & Interest

    3.59% p.a.

    3.59% p.a.

    A low rate Home Loan with no bank fees on variable rate loans. Easy & fast to apply. Choose between flexible repayments and make extra repayments for free on a variable rate home loan.

    • 3.59% p.a.

    • 3.59% p.a.

    • $0

    • $0.00

    • $0.00

    • yes - free

    • yes

    • no

    • 80.00%

    • $200,000

    • $699,999

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Details Close

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

Mortgage tips to avoid paying LMI twice

If you’re one of the thousands of Aussies looking to refinance their home loan, but are hitting a wall when faced with prospects of having to pay LMI again, here are some ways to avoid the unnecessary expense:

  • Save a 20% deposit before buying. The best cure is prevention, and if you’re able to save up a deposit of 20% of the loan amount or more (<80%LVR), you won’t have to deal with lenders mortgage insurance in the first place.
  • Ask for a refund on your LMI premium. If you’re within the first or second year of your loan and decide to refinance, there’s a chance you could receive a partial refund of your LMI premium. No lender or insurer is the same, so it doesn’t hurt to ask.
  • Pay down your loan amount before you switch. If you’re close to owning 20% of your property, it could be worth waiting until you have enough equity to switch without a hitch. This way, you’ll reap the full rewards of refinancing as you’re not putting your extra cash towards LMI.
  • Ask your parents to be guarantors. You can avoid pesky LMI premiums by asking your parents to put their name next to yours on a home loan application. But since their home will be secured against your loan, it’s important you stay on top of repayments.

^ABS Housing Finance, Australia, September 2018

*APRA Quarterly Property Exposures

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