Lenders Mortgage Insurance Refund?

b-t on 23/10/2016 - 17:44
Last edited 23/10/2016 - 22:55

If someone could shed some light on LMI, that would be great!

So I'm looking to buy my first home but as house prices are skyrocketing, I can barely afford the deposit for a house right now.

As I grew up, I was told that to buy a house you need to have 20% of the house value as deposit where the rest, you can borrow it in a home loan from the bank. Until just recently, I found out you can in fact have as little as 10% deposit but then you will be subject to "insurance".

Today, I did some research to try and understand the whole concept and came across the two terms which I believe are related to the problem:

  • LMI : Lenders Mortgage Insurance, a "fee" that is payable to the lender (ie. the bank) once the loan is paid to the borrower (ie. you). This is meant to protect the lender in case that the borrower cannot afford to pay the mortgage. This is only applicable if the LVR (explained below) is above 80% (ie. you borrow more than 80% of the value of the estate)
  • LVR : Loan to Value Ratio, the ratio in which you pay vs you borrowing.

Now the thing that I'm hugely trying to understand:

I know that the LMI can be put into the value of the mortgage (ie. borrowing money as insurance for your borrowed money?????), but what I don't understand is that I have had one of my aunt's tell me that I can just get the mortgage with LMI added in, and then aggressively pay the loan in 2 years and the bank will return the money I paid for LMI to me?

I tried doing research online about LMI refunds but everyone says that banks have stopped such refunds since 2009, but my aunt got her mortgage in 2013…

There was also some other discussion about refinancing and paying LMI? Can someone please explain that as well?

Sorry for the long post, I guess it was also a rant lol. Thanks for any help!

EDIT: Sorry for not being exact, I meant to aggressively bring the loan value below the 80% LVR in a 2 year period.

Home & Garden

Comments

  • mick123 on 23/10/2016 - 18:20
    +2

    Have you ever heard of a bank or insurance company giving a refund?

    I haven't.

    Sorry I cannot answer your question as I do not know but i doubt they would refund. Are you trying to say that within the 2 years you will get under 80% LVR and that would be the basis for the refund?

    • b-t on 23/10/2016 - 22:55
      +1

      Yes, that's exactly what I meant; to bring the loan value down to less than 80% LVR within 2 years.

  • BensonP on 23/10/2016 - 18:39
    +2

    Never heard of refunding of LMI.

    You can pay LMI again when refinancing. This usually happens when people divorce or seperate. Instead of selling the house and splitting the money, one partner can 'pay out' the other an agreed value. The payer then needs to change the home loan from both names, to one name. As they now have 1 income and not much cash lefr, they are subject to the terms of a new home loan.

    Is for LVR…that's simple. If your house is valued at 100000 and you have 25000, your LVR is 75%. (Value - Deposit)/Value

    Most people will still borrow 80% even though they may have more deposit. They will keep it in an offset account which will have the same effect as paying it off the mortgage.

    • b-t on 23/10/2016 - 22:56
      +1

      Yes, that's what I understood; no matter what, you have to pay the LMI.

      What I think has happened is that my aunt most likely had an waiver to not pay LMI on her refinance and that's where she got the idea that she didn't have to pay LMI.

  • rambutann on 23/10/2016 - 19:43
    +1

    You're asking about the possibility of getting a LMI refund if you pay off a property in a short period of time (2 years) but yet you cannot afford a 20% deposit? Are you hedging your bets that somebody is going to die and that you'll be able to pay it off or hoping to win some big bucks at roulette?

    As you said, house prices are going up, get LMI, you will barely notice the fact that you have it and you will probably make it back in capital appreciation. At the end of the day its an avenue for one to procure a property without having to commit as much money.

    Also factor in all other costs associated with buying a place because at the end of the day you will probably need an extra 3-5% to cover these costs, and you will need money to cover water/council rates etc once you take ownership.

    • b-t on 23/10/2016 - 22:57
      +1

      Sorry, I wasn't exact enough. I actually meant to bring the LVR under 80% in 2 years time, does that make me eligible for a refund on my LMI that I paid when the house loan was granted.

      • rambutann on 23/10/2016 - 23:59
        +1

        Nope, I have bought my lvr on my loan below 80% within 3 months and I'm sure as hell not getting a refund. They only used to give sometimes give refunds if you pay LMI then literally pay off the entire loan in a short period of time.

  • Gunther on 23/10/2016 - 20:46
    +2

    Yes you can get a refund on your LMI within the first 2 years, but it depends on your bank and who they insure with - make sure its Genworth, I am not sure of any others who do refunds.

    http://genworth.com.au/docs/homebuyer-centre/lmi-borrower-fa…
    Is the premium refundable if the loan is repaid early?
    A partial refund of the Lenders Mortgage Insurance premium may be applicable if the loan is repaid within the first 2 years.

    • serpserpserp on 23/10/2016 - 21:04
      +1

      Wow that a whole lot of caveats there. "partial" and "may be applicable".

      Plus this is if the ENTIRE loan is paid off within the first 2 years. Who does that unless you are a well bankrolled investor?

      • [Deactivated] on 23/10/2016 - 22:44
        +1

        Who does that unless you are a well bankrolled investor?

        Refinance with another bank?

        Presumably if property prices keep going up, you'll might be able to hit the 80% LVR, even without aggressive repayments.

    • b-t on 23/10/2016 - 22:58
      +1

      Thank you, that's pretty much what I meant.

      However, my aunt is with ANZ (which effectively means that she's under QBE Insurance) which I believe does not have that clause in the conditions.

      Any experience with Genworth?

  • serpserpserp on 23/10/2016 - 21:08
    +1

    OP to answer your question. If you are a owner occupier looking for a standard loan that you are going to pay off over a long period of time your answer is no.

  • STRAPIFY Watch Strap on 23/10/2016 - 21:50
    +1

    I've just bought my first home and I didn't have to pay any LMI and with no deposit.

    If your parents agree to let you use equity in their home as a guarantee, then you will be able to do this.

    I wish I'd known about this earlier as I would've bought a property over in Preston 2 years ago without having to worry about paying the LMI and would have been over $200k in capital gains!

    As others have mentioned… paying back within 2 years is a huge task especially given you are worrying about paying ~$10K for LMI.

    PS: Remember to factor in ~6% for stamp duty PLUS other fees.

    • b-t on 23/10/2016 - 22:59
      +1

      Ah really?!

      That's an idea I could try. Thanks for the tip!

    • serpserpserp on 24/10/2016 - 20:51
      -1

      Must be great to be an only child from a good family…

  • Donaldhump on 23/10/2016 - 22:11
    +1

    if you can pay off the loan in two years (you either have a sick job, or an inheritence) , why not just wait 6 months and you will have 25% of the deposit

    • b-t on 23/10/2016 - 22:59
      +1

      Sorry, I wasn't clear enough in my post. I actually meant to take the LVR under 80% within 2 years; not to pay the entire loan!

      If I could pay the entire loan, I should just pay with cash in 6 months time ;)

  • Bidsmac on 24/10/2016 - 08:56
    +1

    Hi there
    It can be confusing but I had to get LMI to buy my first home and it was a necessary evil unfortunately…but there are refund options (but only partial 40-50%) depending on the LMI policy IF you pay down very quickly or sell the home within the first year or two.
    But apparently not all policies do this - so when you are choosing your lender ask them for PD for their chosen LMI insurer. Best of luck!

    http://m.yourmortgage.com.au/article/lmi-refund-78269.aspx

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