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. Advertiser disclosure.

  • loans.com.au

    1.99% p.a.variable for 12 months and then 2.48% p.a.

    2.47% p.a.

    $1234

    Product details Close details
    Smart Booster Home Loan

    A super low introductory rate home loan with no monthly or ongoing fees. Unlimited free redraws and unlimited additional repayments to help you build your equity and own your home sooner. Multiple loan splits available. (Rates revert after introductory period ends). 20% minimum deposit required.

    • 1.99% p.a.variable for 12 months and then 2.48% p.a.

    • 2.47% p.a.

    • $520

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • Optional - with 0.10% additional interest

    • 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 Booster Home Loan

  • UBank
    Mozo Expert Choice Badge

    2.34% p.a.

    2.34% p.a.

    $1234

    Product details Close details
    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.

    • 2.34% p.a.

    • 2.34% 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

  • Athena
    Mozo Expert Choice Badge

    2.19% p.a.

    2.19% p.a.

    $1234

    Product details Close details
    Celebrate Variable Home Loan

    Fast online application with no fees. Free extra repayments and redraw facility. Min 40% deposit. Crowned Best New Home Loan for 2020 by the Mozo Experts.^

    • 2.19% p.a.

    • 2.19% p.a.

    • $0

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • 60.00%

    • $0

    • $100,000

    • $2,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Celebrate Variable Home Loan

  • Macquarie

    2.64% p.a.

    2.64% p.a.

    $1234

    Product details Close details
    Basic Home Loan

    Flexible loan structure – create up to six loan accounts with different rate and repayment types. Free redraw from your loan using Macquarie Online.

    • 2.64% p.a.

    • 2.64% p.a.

    • $0

    • $0.00

    • $400.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $0

    • $150,000

    • $749,999

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Monthly

    Read our Mozo Review to learn more about the Basic Home Loan

  • 86 400

    2.19% p.a.

    2.20% p.a.

    $1234

    Product details Close details
    Neat Home Loan

    Competitive variable rate. Borrowers choose their repayment schedule (weekly, fortnightly or monthly) and can also make extra repayments. Redraw facility available. Simple online application process.

    • 2.19% p.a.

    • 2.20% p.a.

    • $250

    • $0.00

    • $300.00

    • yes - free

    • yes - free

    • no

    • 60.00%

    • $250

    • $80,000

    • $5,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Neat Home Loan

^See information about the Mozo Experts Choice Home loans Awards

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