How much is mortgage insurance?
Lenders Mortgage Insurance (LMI) can be many thousands of dollars and can vary significantly between lenders and insurers.
"How much is mortgage insurance" is probably one of the most important questions a prospective borrower should ask of their potential lenders because often the difference in interest rates and fees between lenders can be small but the difference in LMI can be significant.
Make sure you get a few quotes before deciding on your loan provider! That's where we can help. Contact us today for an accurate quote.
For an estimate of your LMI premium you can use the tables at the bottom of this page.
The risk variables that are used to calculate LMI
So back to the question of how much is mortgage insurance exactly? Lenders mortgage insurance, or LMI for short, is calculated based on two main risk variables.
- The loan amount. 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.
There are other variables which come into the calculation also:
- Recently (mid 2013) the two main mortgage insurers have added an additional loading (about 20%) for loans secured by investment properties. Most but not all lenders have adopted these changes.
- One major insurer has also added a loading for self employed borrowers. Most lenders who use this insurer have adopted these changes.
- Lo doc loans are considered more risky than fully documented loans and are generally limited to 80% LVR as opposed to 95% for full doc loans.
The mortgage insurers determine their "premiums" based on the perceived risk of a particular loan based on these factors. The higher the perceived risk, the higher the premium charged. The premium is calculated using a percentage of the loan amount borrowed.
High LVR loans with a large loan amount such as a $665,000 loan to buy a $700,000 property would be considered much more risky than a $380,000 loan to buy a property for $400,000 even though both have the same LVR (95%), therefore the LMI premium would be much higher in the first example. Or consider that a loan amount of $380,000 to buy a property for $400,000 would be viewed as more risky than a slightly higher loan amount to buy a a property worth say $450,000. Then there is the type of loan being insured, a lo doc style loan (limited or alternative income proof) is viewed as much more risky than a fully verified loan and therefore lenders mortgage insurance is generally required at lower LVR's and loans at higher LVR's at not available at all
As an example using the table below the premium for a full doc loan of $320,000 at 91% LVR would be calculated at 2.65% of the loan amount. So the amount payable would be $8480 ($320,000 x 2.65%). There is then also state and territory insurance duty on top of this which ranges from 5% to 10% of the premium depending on the state or territory where the property is located. So all up the borrower would have to pay around $9000 in this scenario. Please refer to the tables below and examples for more on calculating an LMI premium in a given scenario. Although these LMI tables are accurate any calculations you make should only be used as an indication of the likely premium. As we explore below premiums can vary significantly depending on the lender / insurer chosen!
When is Mortgage Insurance Payable?
Generally mortgage insurance will apply to all loans with an LVR of over 80% for full doc loans (normal loans) and over 60% for lo doc loans. Some lenders mortgage
insure all their loans regardless of the LVR, but normally the lender would cover this cost themselves if the LVR is less than around 80% for a full doc loan and less than 60% for a low doc loan. There are some exceptions to these general guidelines but not many.
Do all lenders have the same premiums?
NO, NO, NO, NO! The difference between lenders (including between the majors banks) can be upwards of $15,000 in certain scenarios.
So how much is mortgage insurance is one of the major things we look at when assessing which loan is best for a borrower.
Why doesn’t my bank have cheaper mortgage insurance when they are one of the major banks?
The four main reasons lenders can differ in the premiums they charge in a given scenario are:
- The way the premium is calculated.
- The loan amount band a loan falls into.
- The insurer that a lender uses.
- The lender / insurer applies a loading for certain borrowers i.e. self employed and or investors.
The majority of lenders calculate mortgage insurance premiums by capitalising the premium (adding it to the loan) rather than it having to be paid from a borrowers own funds at settlement. The capitalisation method can mean a significant saving in the premium amount, as the premium is calculated from a lower LVR and lower loan amount (ie not including the premium amount itself) and importantly whatever the premium is it is just added to the loan amount. While most lenders now capatalise the LMI premium most lenders not cap the final LVR to 97%. There are still a couple of lenders who will do a full 95% + LMI loan.
If you are borrowing between $500,000 and $800,000 and at a higher loan to value ratio the difference between insurers premiums can be around $12,000! So before you make your final lender choice it can seriously pay to ask "how much is mortgage insurance"?
The two main insurance companies are Genworth and QBE. A few lenders also self insure some of their loans. St.George and Westpac have their own insurer but use either QBE (Westpac) Genworth (St George) for all loans between 90% and 95% LVR. ING Direct also offers a mortgage insurance equivalent called "reduced equity fee" or REF for short which in certain circumstances can be a significant saving to borrowers.
Is there any way to avoid mortgage insurance altogether?
If you are borrowing under a full documentation scenario there is currently 1 lenders who may not charge mortgage insurance if you are borrowing between 80% and 85% loan to value ratio. There are certain conditions to meet in order to be eligible for this so please call or enquire online to see if you qualify. Above 85% it is unlikely at present that any lender would waive mortgage insurance. In the past some lenders made special concessions for doctors buying their first home but this policy has now stopped.
For lo doc borrowers looking to borrow between 60% and 80% there are a number of alternatives to mortgage insurance through non bank lenders although the loans offered usually have higher interest rates and many have fees similar in size to mortgage insurance.
So how much is lenders mortgage insurance for your scenario?
Simple, contact us for quote. We will assess which lenders you qualify with then from there compare their lenders mortgage insurance rates as well as their interest rates, fees and service to allow you to make an informed decision as to which is the best lender for your unique situation.
How much is mortgage insurance? (reference tables)
TABLE 1: TYPICAL LMI TABLE - FULL DOCUMENTATION LOANS (for self employed or investment properties add 20% loading)Source: mortgageexpertsonline.com.au