Lenders Mortgage Insurance Explained
This site www.mortgageinsuranceaustralia.com.au is a free information service to assist consumers with information regarding mortgage insurance in the Australian Bank and Non-Bank sector. This free service has been provided by National Finance Corporation Australia (NFC) www.nfc.com.au and explains how it works.
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Lenders' Mortgage Insurance (LMI) protects a lender against loss should a borrower default on the loan and the property is subsequently reposessed and sold. The insurance covers the amount from the sale where it is not enough to pay off the loan in full to the bank or lender.
Who applies for LMI?
The lender applies for the insurance directly normally from their centralised mortgage processing centres. Mortgage brokers cannot normally directly apply for lenders mortgage insurance contracts. Bank staff at branch level also do not typically apply for lenders mortgage insurance contracts.
Who is insured by the LMI?
The lender, not the borrower, is actually covered by LMI. Bank staff and mortgage brokers I belive do not adequately explain this to borrowers. I have met many people over the last 20 plus years who believe lenders mortgage insurance provides cover to them personally. Mortgage Insurance (LMI - Lenders Mortagge Insurance) protects the bank/lender against loss. Loan Protection Insurance protects borrowers and would pay a separate on-going monthly or yearly premium for this (see more about Loan Protection Insurance). Loan Protection Insurance may cover you for Life, Specified Trauma Events and Involuntary Unemployment.
If you are in doubt what you paid for you need to find out now. NFC may be able to assist you with your enquiries so contact us to find out what you are actually covered for.
What types of loans can be insured?
Most mortgage insurance companies will provide LMI for most residential mortgage loans including:
- Owner occupied home loans
- Property investment loans
- Construction home loans
- Home improvement or extension loans
- Principal and interest loans
- Interest only loans
- Lo Doc Loans for all the above
- Bridging Finance
Why should I pay to insure my lender?
For lenders, LMI gives the institution the confidence to approve more home loans and enhances their ability to lend to a broader range of customers. For borrowers, LMI means they can purchase a home or an investment property sooner, allowing people with less than 20% deposit to get into the property market earlier.
What will be the fee for LMI?
LMI is a once only fee which is paid at loan settlement. How much money you borrow and the size of your deposit will determine the fee amount for the LMI.
How do I qualify for LMI?
Before any mortgage insurance company will insure a mortgage, the lender needs to check the borrower's credit history, ensure they are able to meet the mortgage repayments and that they are adequately secure.
What is a Family Guarantee? Can I get LMI on a Family Guarantee Loan?
Family Guarantee (sometimes called Family Pledge) loans are one way to borrow 100% of the purchase price. There are great differences between the guarantor/family guarantee loans offered by different lenders and some lenders do not offer family guarantee products at all.
With the help of a guarantor you can borrow 100% of the purchase price plus purchasing costs such as stamp duty (if applicable) and your lawyer/solicitors costs. Most lenders will cap the loan amount at 100% of the purchase price plus reasonable costs with a family guarantee. This allows you to purchase a property without any savings whatsoever. The standard policy (as at May, 2013) by most Australian banks, lenders and mortgage insurers for savings is 3 – 5% of the purchase price.
See more on Family Guarantees at www.familyguarantee.net.au also powered by NFC - National Finance Corporation Australia www.nfc.com.au
Can I still obtain a deposit bond when my new loan requires LMI?
Purchasers and borrowers can still obtain deposit bonds when their loans are subject to Lenders Mortgage Insurance. See more on deposit bonds at www.depositbonds.co
How can NFC National Finance Corporation help with LMI?
LMI is a complex area and requires experienced advisors to guide borrowers through the maze. When you choose NFC National Finance Corporation you choose a team with over 25 years' experience in the banking and finance industry. The Directors and key staff of National Finance Corporation have gained this experience as senior management of Australia's leading financial institutions and investment companies.
Why trust NFC National Finance Corporation?
NFC National Finance Corporation is a nationally accredited finance & mortgage broking company and for it's key staff, the finance and investment industry is their life and passion. NFC National Finance Corporation's mortgage brokers are members of the Mortgage and Finance Association of Australia (MFAA).
Did You Know
Genworth and QBE have recently being approving mortgage insurance cover for applications which are declined by some major lenders such as Commonwealth bank (CBA), Westpac and ANZ.
What does this mean? Contact us to find out how this could benefit you. Don't rely on the decision of your own bank. Contact the right mortgage broker to discover your path through the ever changing banking landscape in Australia.
Do NOT apply at multiple institutions if lenders mortgage insurance is required. With most major lenders and mortgage insurers using "credit scoring" models for their assessment, if you have too many applications noted on your credit report you could be declined regardless of whether you qualify for a loan or not.
LMI History and Players
In the late 90's we had 4 mortgage insurers accessible to most lenders. They were CGU, Royal & Sun Alliance, MGICA (then PMI now QBE) and Housing Loans Insurance Corporation (HLIC, now Genworth). HLIC were in essence the old government statutory body set up to assist Australian lenders. This has now become Genworth LMI. In a limited capacity, PRIME and The Mortgage Insurance Company were providing cover to smaller players but appear to have vanished at the commencement of the GFC.
A few major lenders however have what we call "Open Policy" which means they may have a separate policy for the approval of LMI. This can mean a different decision from one bank to the next but ultimately with the same mortgage insurance provider.