Before we find out the answer to this question, let’s dig in deep to know what basically lender mortgage insurance (LMI) is. Lenders Mortgage Insurance (LMI) is a kind of insurance that a lender takes out (for instance, a bank or financial institution) for its own insurance or security against the risk of not recovering the loan, in case the borrower is not able to pay your loan amount.
The amount of Lenders Mortgage Insurance (LMI) is not fixed and can significantly vary between the lenders and insurer.
After having in-depth knowledge about Lenders Mortgage Insurance, you should know the amount of mortgage insurance. If you are a borrower, this is the most important question you should ask the potential lender. There can be a small difference in the Interest rates and fees, however, LMI difference is crucial.
Have you decided on your lender? Did you consider getting some quotes before the final decision? If not, don’t worry. We are here to provide thorough assistance and guide you with the whole process.
Risk variables for calculating LMI
Lenders mortgage insurance calculation is based on two key risk variables.
- The amount of loan
The higher the loan amount the higher the risk for the insurer.
- The loan to value ratio (LVR)
The higher the loan to value ratio the higher the risk for the insurer.
In addition to this, there are other variables that also come into the calculation:
- Previously, the major mortgage insurers added a loading for loans secured by the investment possessions which is about 20%. Most of the lenders started implementing this change.
- A main insurer also added an additional loading for independent mortgagors, which was adopted by most of the lenders.
- Lo doc loans are known to be riskier as compared to fully documented loans with a limit of 80% LVR as opposed to for full doc loans with a limit of 95%.
“Premiums” are determined by the mortgage insurers on the basis of a particular loan’s observed risk. If the perceived risk is high, the premium will also be charged high. You can calculate the premium by using a ratio of the borrowed loan amount.
LVR loans having a considerable loan amount, for instance, a loan amount of $665,000 to buy a property worth $700,000 will be considered riskier as compared to the loan of $380,000 to buy a property worth $400,000.
Although both have a similar LVR of 95%, hence, the LMI premium will be higher in the first example.
When is Mortgage Insurance Payable?
For full doc loans or normal loans, mortgage insurance will be applied to all the loans with an LVR of more than 80%. On the other hand, for low doc loans, the LVR would be over 60% or 70%. One important point to note here is that LVR restrictions vary to different lenders. The lenders ensure all the loans irrespective of the LVR, however, if the LVR is lesser than 80% for a normal loan, the lenders cover this amount themselves.
Same premiums for all the lenders?
No, all the lenders don’t have the same premiums! In certain scenarios, the difference between lenders can be about $5,000 or even more, making you qualify for the waivers.
Do some professions get increased LVR without Mortgage insurance?
Some lenders view medical professionals and other specific professionals as more trustworthy. They usually have a lower risk of loan default as compared to other borrowers. For competing to be one of those professionals, some banks waive their policies of LMI up to 90% LVR.
Following are the Medical Professionals that include:
- Medical Specialists such as psychiatrists
- General Practitioners
- Hospital employed doctors (interns, residents, and registrar)
- Veterinary Practitioners
Other than medical Practitioners, there are other professionals that are eligible for special LMI waiver policies while applying for a loan.
These are the professionals who work in:
- Legal Services
- Engineering, mining or resources
My bank doesn’t have inexpensive mortgage insurance despite being a major bank. Why?
Following are the four major reasons how lenders differ in the premiums that they charge:
- How the premium is being calculated.
- The band of a loan amount a loan falls into.
- The insurer that is used by the lender.
- The lender or insurer applies an additional loading for specific borrowers such as investors or self-employed.
Lenders usually calculate the insurance premiums by adding it to the loan rather than having it paid from the personal funds of a borrower at settlement.
In addition to this, the method of capitalisation refers to a substantial saving in the premium amount, since premium is calculated from a lower LVR. While most of the lenders capatalise the LMI premium now, most lenders will not agree on LVR more than 92%, 95% or 97%. Still, there are some lenders who would do up to 98% or 98.5% inclusive of the LMI.
Having said that, it is important to know that before you make your final choice of lender, you must always ask about the amount of mortgage insurance.
Genworth and QBE are among the two main insurance companies in Australia. Mostly, the smaller players use the services of these insurance companies. On the other hand, the Westpac group that consists of the brands like St.George, Westpac Bank SA, RAMS and Bank of Melbourne have their own insurer up to 90% LVR but they still use a new insurance company in the market for the loans between 90% and 95%.
How much is lenders mortgage insurance for your situation?
For the best quote in the market, contact us. We are here for your services, we will assess the lenders you qualify for. We will also compare their lenders mortgage insurance rates and their fees, interest rates and service. So that you can make a sensible decision and you will know about the best lender for your situation.
YOU COULD POTENTIALLY SAVE THOUSANDS OF $$ ON LMI.