The Lenders Mortgage Insurance trap hurting Aussie budgets

Monika Gudova

29 Nov 2018

redactor/hero-images/491/people-couple-stress-home_loan_content.jpg

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

    UBank

    3.59% p.a.

    3.59% p.a.

    $1234

    Product details Close details
    Go to site
    UHomeLoan - Discount Offer

    Enjoy a low rate & no bank fees (on variable loans) from one of Australia's leading digital banks. Easy & fast to apply, you'll get free redraw with flexible repayments. Min. 20% deposit required. Winner of a Mozo Experts Choice Award 2019 in the Low Cost Home Loan category.

    • 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

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

    Go to site

  • Promoted

    Hot Deal Brand New Offer

    loans.com.au

    3.48% p.a.

    3.50% p.a.

    $1234

    Product details Close details
    Go to site
    Smart Home Loan

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

    • 3.48% p.a.

    • 3.50% p.a.

    • $520

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $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

    Go to site

  • Promoted

    Athena

    3.59% p.a.

    3.55% p.a.

    $1234

    Product details Close details
    Go to site
    Variable Home Loan

    With low rates, no fees, and automatic rate match, new-comer Athena wants you to love them and leave them. Refinance only. Minimum 20% deposit.

    • 3.59% p.a.

    • 3.55% p.a.

    • $0

    • $0.00

    • $0.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $100,000

    • $2,000,000

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

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

    Go to site

  • Promoted

    Hot Deal Upfront fees waived (Apply by 28 June 2019 – T&Cs apply)

    Homestar

    3.49% p.a.

    3.49% p.a.

    $1234

    Product details Close details
    Go to site
    Star Essentials Home Loan

    A super low rate home loan packed with the essentials. No application or ongoing fees. Unlimited additional repayments. Free online redraws when that holiday beckons. For a limited time, refinancers can save more with up to $515 third party upfront fees waived – so get in quick! Loan size $200k to $750k, no construction loan.

    • 3.49% p.a.

    • 3.49% p.a.

    • $0

    • $0.00

    • $535.00

    • yes - free

    • yes - free

    • no

    • 80.00%

    • $200,000

    • $749,999

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Star Essentials Home Loan

    Go to site

  • Promoted

    RACQ Bank

    3.69% p.a.

    3.69% p.a.

    $1234

    Product details Close details
    Go to site
    Mortgage Saver Special

    $0 Establishment fee. Plus 15% off Home & Contents Insurance for the life of the loan with Home Plus. T&Cs apply. QLD Residents only.

    • 3.69% p.a.

    • 3.69% p.a.

    • $0

    • $0.00

    • $297.00

    • yes - free

    • yes - free

    • no

    • 95.00%

    • $20,000

    • -

    • Variable

    • Principal & Interest

    • Owner Occupier

    • Weekly, Fortnightly, Monthly

    Read our Mozo Review to learn more about the Mortgage Saver Special

    Go to site

*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

Mozo may receive advertising fees from the financial institutions, issuers of financial or credit products and third party advice providers that are shown on this page. These fees are based on a cost per click, cost per acquisition, or a fixed fee.

The new online loan trend that could save you a fortune

5 killer lenders taking on the big banks in 2019

Tell me more

APRA to change home loan assessment guidelines, but is it for the best?

Loans.com.au announces rock bottom 3.48% fixed home loan rate

Tell me more

Home loan discount frenzy drives bargains for borrowers

ME jumps on the bandwagon, cuts rates for owner occupiers and investors

Tell me more

Four in five home borrowers make $18,000 mistake

Lowest in the market: online lender Tic:Toc slashes variable rate to 3.47%

Tell me more

Prime Minister promises Aussie first home buyers would only pay a 5% deposit if his government was re-elected