The " LMI " Impost !

The biggest financial transaction in most people's lives is the day they sign a mortgage and start the journey to home ownership.  Most people shop around looking for the cheapest interest rate and then comes the decision whether to leave that interest variable - or lock it in if that option is available.  There are a host of other matters to be considered.  In some instances, first home buyers will get government grants or exemption from that horror called " Stamp Duty ".   It is a time of very many decisions.

For the average home buyer an item called " LMI " tacked onto the bill of costs is something of a mystery.  It stands for  " Lender's Mortgage Insurance " and on a home in the $ 500,000 range if amounts to a cost of about $ 17,500.   Most people don't have spare cash to pay up front and consequently it gets lumped into the loan - and over a thirty year period it would end up costing an additional $ 24,000.

Amazingly, the lender is demanding that the person getting a loan takes out an insurance policy to reimburse the lender for non-repayments.    It seems that the big banks have all avenues covered.   Not only can they foreclose and take back the house if repayments fall into arrears, they have the integrity of the loan covered by insurance - and stick the struggling owner with the bill.

That happens in no other area of commerce.  Those selling any sort of merchandise face the usual risks when it comes to getting paid.  It is also an unusual fact that applying LMI seems to be selective.  It is not usually demanded from those from a select group of high income earners such as doctors, dentists, business owners or those heading corporations.    This insurance cover is aimed squarely at the people who hold down a weekly paid job in our society.

There is also another hidden trap.   Should a borrower find a better rate of interest and decide to switch the loan, the old LMI is often terminated - and a new LMI applied with a consequent new premium charged.  It seems that these LMI policies are not transportable from one loan to another.

It seems to be a matter of instigation.   The LMI is " owned " by the lender rather than being " owned " by the person paying the loan.   A little redefinition here could save the average person a lot of money.  There seems no reason why an LMI should not simply name the current holder of the mortgage as the beneficiary and therefore apply it to whatever loan applied - rather than to a specific lender.

A law change to ensure portability of LMI's would be a great benefit to the average person paying off a mortgage !