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LMI

LMIHow to calculate LMI

LMI is a commonly used abbreviation for Lenders Mortgage Insurance. Most finance professionals tend to use the term LMI instead of its long name meaning in their conversations. LMI and lenders mortgage insurance is the same thing!

LMI is obtained by a lender when a borrower seeking finance has an LVR (loan to valuation ratio) of greater than 80% for a full doc loan. LMI is also sought for most low doc loans where the LVR is over 60%.

What is LMI?

LMI is an insurance policy taken out by the lender to insure the loan being advanced to the borrower. LMI protects the lender and not the borrower.

In the event of default by a borrower, a lender can step in and sell the property to recover their money or mortgage. If the house sale price was less than the total amount owed, then the lender will recover its money from the LMI provider. This position is commonly known as a ‘negative equity.

Cost of LMI

LMI cost is determined by the lender and their insurance provider. The cost of LMI is calculated using a sliding scale. The basics to working out the cost of LMI is that the higher the loan amount, coupled with a high LVR, then the more expensive the premium will be.

In many instances, it is possible to use a lender who uses the same LMI provider as another lender and yet get a different LMI cost. This is due to the fact that different lenders are given different rate cards by LMI providers. Hence this will make their LMI cost different between lenders.

Calculate LMI

To calculate LMI, you will need to understand the rate tables used by the LMI providers. Hence we have developed our own online LMI  calculator with the correct and most up to date calculation tables used by lenders in 2012.

View our LMI calculator as a guide to help you calculate and compare the cost of LMI between different providers.

LMI Rates

LMI Rates are determined by the lender and the lender they have an agreement with. it is possible for a well informed mortgage broker to give you the LMI rates charged by a lender in PDF format.

An example of a LMI rate card will look something like the below.

LMI &Base LVR Bands $0 – $300,000 $300,001 – $500,000 $500,001 – $750,000 $750,001 – $1,000,000 $1,000,001 – $1,500,000
80% – 82.99% 0.46% 0.62% 0.99% 0.98% 1.11%
83.00 – 85.99% 0.65% 0.91% 1.46% 1.47% 1.63%
86.00 – 89.99% 0.88% 1.46% 1.82% 1.93% 2.42%
90.00 – 91.99% 1.64% 2.01% 3.30% 3.46% 3.89%
92.00 – 93.50% 1.76% 2.12% 3.51% 3.59% 4.05%
93.51 – 94.99% 1.95% 2.58% 3.78% 3.96% 4.38%
95.00 – 97.00% 2.31% 2.89% 3.93% 3.99% 4.53%

Can I choose the LMI provider?

Most lenders use external LMI providers which determine the scope of their LMI agreement along with the cost of LMI between one another. This agreement does not concern the borrower, but it is possible to get a cheaper LMI between different lenders and providers.

Compare LMI

It’s easy to compare LMI between different providers if you seek a good mortgage professional. Our consultants can compare the LMI costs between different lenders as they know which LMI providers work with different lenders.

LMI Refund

It is possible to get an LMI refund if you close or reduce your loan exposure for a loan that was previously mortgage insured for a higher LVR within 2 years of funding date. Further, you could claim an LMI refund if you can prove there is current sufficient value growth in your property taking away the need for LMI to be in place for a particular loan.

The amount of LMI refund could be anything from 50% of the original total premium paid down to 10% of the original premium paid. The majority of our borrowers are initially unaware of this until we make them aware of it. Anything is better than nothing, which means you will get money back when you probably did not budget for it initially!

Different LMI Providers

There are 2 prime LMI providers in Australia. These 2 LMI providers mortgage insure over 60% of loans in Australia. However, some banks have created their own LMI providers which insure their own loan portfolio.

The LMI providers in Australia are

  1. Genworth (GE)
  2. QBE(formerly known PMI)
  3. STG LMI (St George LMI)
  4. WBC LMI (Westpac LMI)
  5. ANZ LMI (ANZ LMI)
  6. AIC (American Insurance Company)
  7. REF (Reduced equity Fee)
  8. LDP (Low deposit Premium)

Other LMI Providers

Some lenders provide a different form of LMI. This is commonly known as self mortgage insurance or lenders will charge a risk fee instead of LMI. The protection to the lender is the same as LMI, but they have created an approach whereby they call the layer of protection which was in effect an insurance policy something else. This helps them avoid having charge government taxes like stamp duty and GST which is applicable on all insurance policies.

When lenders offer a different type of LMI, it is generally quite cheaper than normal LMI. Hence it pays to discuss your LMI position with one of our brokers.

Alternate LMI providers can be referred to as either of the following:

  1. REF (Reduced equity Fee)
  2. LDP (Low deposit Premium)

When looking for a mortgage, it’s best to speak to a qualified broker who is familiar with different LMI considerations to know you are getting the best result for yourself. Speaking to one of our consultants can save you thousands of dollars that you weren’t expecting!

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