Marshall also said the number of LMI providers are limited, with major insurers Genworth and QBE taking the lion’s share of the market. More providers would improve options for borrowers and could lead to lower costs.
However, for borrowers who want to refinance but don’t want to pay for LMI again, there are some options to try before striking up a conversation with a new lender says Daisy Stevens, head of lending operations at digital mortgage broker Finspo.
“Firstly, you can go to your existing lender and see if they would pass on a lower interest rate,” she says. “You can also revalue your home and see whether your property value has increased since you purchased it, which may be true for some people in this market.”
Stevens agrees enabling the transfer of LMI would improve competition in the mortgage market and make life easier for people with less than 20 percent deposits.
A spokesperson for the Australian Banking Association, which represents the country’s major banks, said LMI provided flexibility for borrowers who have less than a 20 percent deposit to get into the housing market.
“If a borrower remains with a lender and pays down more of the loan, in time, that borrower can refinance with a different lender and avoid paying LMI,” the spokesperson said. “Borrowers are also able to speak to their lender about refinancing with the same lender, as lenders may be able to offer a more competitive rate.”
In 2018, the Productivity Commission recommended that banks offer customers a partial refund of the cost of LMI when borrowers choose to refinance their loan, advice adopted by many banks.
Data from APRA shows about 17 per cent of all home loans require LMI, down from 20 per cent in March 2019, largely as a result of the introduction and expansion of the First Home Buyer Deposit Scheme, which allows first homeowners to buy a property with as little as a five percent deposit without the need to take out LMI.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.