The Lenders Mortgage Insurance trap hurting Aussie budgets

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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

  • Promoted

    loans.com.au

    2.57% p.a.

    2.59% p.a.

    $1234

    Product details Close details
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    Smart Home Loan 80

    A low-rate home loan that could save you thousands, with no ongoing fees plus unlimited extra repayments and free redraws. Mozo Experts Choice Low Cost Home Loan 2020.^ 20% deposit required. Limited time only.

    • 2.57% p.a.

    • 2.59% p.a.

    • $520

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $520

    • $50,000

    • $1,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Smart Home Loan 80

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  • Promoted

    UBank

    2.49% p.a.

    2.49% p.a.

    $1234

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    UHomeLoan - Discount Offer

    Enjoy a super low rate, $0 fees and easy application with the Mozo Experts Choice Home Lender Bank of the Year.^ Free redraw with flexible repayments. Min 20% deposit.

    • 2.49% p.a.

    • 2.49% p.a.

    • $0

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $0

    • $100,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the UHomeLoan - Discount Offer

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  • Promoted

    HSBC

    2.65% p.a.

    2.66% p.a.

    $1234

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    Discounted Home Value Loan

    No ongoing fees. Free extra repayments and online redraw. Mozo Experts Choice Split Home Loan 2020^

    • 2.65% p.a.

    • 2.66% p.a.

    • $150

    • $0.00

    • $300.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $150

    • $50,000

    • $7,500,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Discounted Home Value Loan

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  • Promoted

    ING

    2.59% p.a.

    2.62% p.a.

    $1234

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    Mortgage Simplifier

    Enjoy no ongoing monthly or annual account-keeping fees. Unlimited additional repayments. Redraw facility available. If you choose to round up your Orange Everyday, every card purchase will help to directly reduce your outstanding home loan balance.

    • 2.59% p.a.

    • 2.62% p.a.

    • $299

    • $0.00

    • $250.00

    • yes - free

    • yes

    • no

    • 80.00%

    • $299

    • $150,000

    • $999,999

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Fortnightly, Monthly

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  • Promoted

    Bank of Queensland

    2.69% p.a.

    2.86% p.a.

    $1234

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    Economy Home Loan Discount Rate

    An ongoing low variable interest rate with free redraw, flexible repayment options and one free valuation. Discounted Economy variable rate available for owner occupier lending with max LVR of 70%.

    • 2.69% p.a.

    • 2.86% p.a.

    • $450

    • $10.00 monthly

    • $320.00

    • yes - free

    • yes

    • no

    • 70.00%

    • $450

    • $150,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    • $2,500 cashback when you refinance your home loan to BOQ, min $250,000, 70% LVR or less. Apply before 15 August 2020, settle by 31 October 2020.

    Read our Mozo Review to learn more about the Economy Home Loan Discount Rate

*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 the amount and term you entered.

**Initial monthly repayment figures are estimates only, based on the advertised rate, and a loan of $500,000 repaid over 25 years. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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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