The Lenders Mortgage Insurance trap hurting Aussie budgets
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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Promoted
UBank
3.34% p.a.
3.34% p.a.
$1234
Product details Close detailsUBank UHomeLoan - Discount Offer
Owner Occupier, Principal & Interest
3.34% p.a.
3.34% p.a.
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.
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.
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3.34% p.a.
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3.34% 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
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no
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80.00%
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$200,000
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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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Weekly, Fortnightly, Monthly
Read our Mozo Review to learn more about the UHomeLoan - Discount Offer
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Promoted
Bank of Queensland3.54% p.a.variable for 24 months and then 4.01% p.a.
4.06% p.a.
$1234
Product details Close detailsBank of Queensland2 Year Intro Rate Variable Home Loan
Owner Occupier, Principal & Interest
3.54% p.a.variable for 24 months and then 4.01% p.a.
4.06% p.a.
Choose weekly, fortnightly or monthly repayments to align with your pay cycle or budget needs. Make additional repayments anytime to reduce the interest on your loan and pay your loan off sooner. Available for construction loans.
2 Year Intro Rate Variable Home Loan
Choose weekly, fortnightly or monthly repayments to align with your pay cycle or budget needs. Make additional repayments anytime to reduce the interest on your loan and pay your loan off sooner. Available for construction loans.
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3.54% p.a.variable for 24 months and then 4.01% p.a.
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4.06% p.a.
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$150
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$10.00 monthly
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$320.00
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yes - free
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yes
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yes
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90.00%
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$150,000
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-
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
Read our Mozo Review to learn more about the 2 Year Intro Rate Variable Home Loan
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Promoted
HSBC 3.27% p.a.
3.28% p.a.
$1234
Product details Close detailsHSBC Discounted Home Value Loan
Owner Occupier, Principal & Interest
3.27% p.a.
3.28% p.a.
As of 22nd July HSBC will be reducing this rate to 3.27% p.a.* (3.28% p.a. comparison rate^) so enquire now and be one of the first to make the most of this great rate. Enjoy unlimited free extra repayments and no ongoing service fees when you apply by 31 July (t&cs apply). Get help with the application process with an HSBC relationship manager. Winner of a Mozo Experts Choice Award 2019 in the Low Cost Home Loan category.^
Discounted Home Value Loan
As of 22nd July HSBC will be reducing this rate to 3.27% p.a.* (3.28% p.a. comparison rate^) so enquire now and be one of the first to make the most of this great rate. Enjoy unlimited free extra repayments and no ongoing service fees when you apply by 31 July (t&cs apply). Get help with the application process with an HSBC relationship manager. Winner of a Mozo Experts Choice Award 2019 in the Low Cost Home Loan category.^
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3.27% p.a.
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3.28% p.a.
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$150
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$0.00
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$300.00
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yes - free
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yes - free online
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no
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90.00%
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$50,000
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$7,500,000
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
Read our Mozo Review to learn more about the Discounted Home Value Loan
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Featured Product
Athena3.09% p.a.
3.05% p.a.
$1234
Product details Close detailsAthenaVariable Home Loan
Owner Occupier, Principal & Interest
3.09% p.a.
3.05% p.a.
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.
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.
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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
Read our Mozo Review to learn more about the Variable Home Loan
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Promoted
IMB Bank3.54% p.a.
3.57% p.a.
$1234
Product details Close detailsIMB BankBudget Home Loan
LVR<90%, Owner Occupier, Principal & Interest
3.54% p.a.
3.57% p.a.
Start with only 10% minimum deposit. Unrestricted additional repayments and free redraw facility.
Budget Home Loan
Start with only 10% minimum deposit. Unrestricted additional repayments and free redraw facility.
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3.54% p.a.
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3.57% p.a.
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$350
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$0.00
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$350.00
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yes - free
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yes - free
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no
-
90.00%
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$75,000
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$5,000,000
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
Read our Mozo Review to learn more about the Budget Home Loan
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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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