After the recent decision by the major banks to lift interest rates above the Reserve Banks cash rate, the government has responded with measures designed to make it easier for customers to change lenders.
These measures have operated to reduce early exit fees which generally cost around $700 when the loan is paid out in the first 3-4 years. However, the problem is not the early exit fees but rather the non transportability of Lenders Mortgage Insurance which has not even been mentioned by either side of politics
Lenders Mortgage Insurance is charged when a borrower has less than a 20% deposit or equity in their existing property. It is a once off upfront fee and is designed to protect the lender against a bad debt. There are two lender mortgage insurers in Australia being Genworth and QBE and different banks will use one of these two insurers.
The issue arises for borrowers when they want to refinance without having 20% equity in their home as they will be required to pay lenders mortgage insurance with the new lender.
For example: If a customer had a loan with the Commonwealth Bank they most likely would have paid lenders mortgage insurance when they first purchased the home (presuming they did not have a 20% deposit). If they now wish to refinance to a bank with a cheaper rate and have not built up 20% equity, the borrower will be required to pay the LMI again to the new lender. This is the case even if the Lenders Mortgage Insurer is exactly the same insurer that is already insuring the Commonwealth Bank loan. Ie, if the refinance was from CBA to ING, both CBA to ING use Genworth as their mortgage insurer.
Neither side of politics have commented on this and for many people, the non transportability of LMI is the real bar to refinancing. It is submitted that if its the same mortgage insurer with no increase in loan amount and no change to borrowers or security, then LMI should be transferable from one lender to another.
With LMI costing anywhere from a few thousand to $10,000, borrowers looking to refinance need to ensure they are not again paying LMI, and if they are, that the interest rate saving makes it worthwhile.
Brendan ConquestWe have been working with Justin for almost 10 years and he has always made the process easy and time efficient. Justin’s help to get things over the line is stress free and uncomplicated, he always handles everything with such care and compassion.
We are extremely grateful for Justin’s services and would highly recommend him and the MAP home Loans team to anyone in need of help, advice or guidance with their home loans.
Thank you, Justin!
Timothy RussMy Wife and I worked with Justin to purchase our first home and we couldn’t be happier with the help we received to make our dream a reality. Justin had answer’s to every question and made it very easy to understand how it all works. I highly recommend using Map home loans to take the stress out of buying a house.
ShannonJustin was brilliant to have as an broker. He worked with my schedule and got everything organised with good counsel and assisted with resolving any issues, and where he wasn’t able to personally, pointed me in exactly the right direction to work the issue, myself. Absolutely will be utilising his services again in the future.
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