The Lenders Mortgage Insurance trap hurting Aussie budgets
Monika Gudova
29 Nov 2018
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
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loans.com.au3.03% p.a.
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3.03% p.a.
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3.05% p.a.
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$520
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$0.00
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$0.00
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yes - free
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yes - free
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no
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80.00%
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$50,000
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$1,000,000
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Product details Close detailsUBank UHomeLoan - Discount Offer
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One of Australia's leading digital banks. Easy & fast to apply. Free redraw with flexible repayments. Min. 20% deposit required. Low rate and no bank fees (on variable loans). Winner of a Mozo Experts Choice Award 2019 in the Low Cost Home Loan category.^
UHomeLoan - Discount Offer
One of Australia's leading digital banks. Easy & fast to apply. Free redraw with flexible repayments. Min. 20% deposit required. Low rate and no bank fees (on variable loans). Winner of a Mozo Experts Choice Award 2019 in the Low Cost Home Loan category.^
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3.09% p.a.
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3.09% p.a.
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$0
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$0.00
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$0.00
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yes - free
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yes - free
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no
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80.00%
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$200,000
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
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Athena3.09% p.a.
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Product details Close detailsAthenaVariable Home Loan
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Low rates, no fees, and automatic rate match. New-comer Athena wants you to love them and leave them. Refinance only. Minimum 20% deposit.
Variable Home Loan
Low rates, no fees, and automatic rate match. New-comer Athena wants you to love them and leave them. Refinance only. Minimum 20% deposit.
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3.09% p.a.
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3.05% p.a.
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$0
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$0.00
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$0.00
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yes - free
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yes - free
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no
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80.00%
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$100,000
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$2,000,000
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
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ANZ3.38% p.a.
3.42% p.a.
$1234
Product details Close detailsANZSimplicity PLUS Special Offer LVR <80%
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Competitive low rate. No upfront or monthly fees. Flexibility to make extra repayments and redraw. Minimum 20% deposit required.
Simplicity PLUS Special Offer LVR <80%
Competitive low rate. No upfront or monthly fees. Flexibility to make extra repayments and redraw. Minimum 20% deposit required.
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3.38% p.a.
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3.42% p.a.
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$0
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$0.00
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$160.00
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yes - free
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yes
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no
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80.00%
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$50,000
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Variable
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Featured Product
ME3.34% p.a.
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A flexible Home Loan with Member Package for Owner Occupiers including a low rate, redraw and offset. Annual fee $395.
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A flexible Home Loan with Member Package for Owner Occupiers including a low rate, redraw and offset. Annual fee $395.
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3.34% p.a.
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3.78% p.a.
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$200
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$395.00 yearly
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$350.00
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yes - free
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yes - free
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yes
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80.00%
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$400,000
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$699,999
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Variable
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Principal & Interest
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Owner Occupier
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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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