How Much Is Lender Mortgage Insurance (LMI) after all?

nuker on 09/01/2023 - 21:04
Last edited 09/01/2023 - 22:41

Im making a spreadsheet to compare loans, I'm about to dive in :)
Cannot find how banks calculate LMI. My loan will be LVR ~0.85, good salary (thus killing FHBG), first home, owner occupied.

Is it norm that some banks drop LMI completely for strong applications? And if not, it gets capitalised (no need to pay LMI upfront)?

From this spreadsheet "Lenders Mortgage Insurance (LMI) Calculator" here I see it is $LoanValue * 0.0128. Browsing OzB forums, II saw people were getting $15K LMI on $500k loans ( * 0.03).

Thanks!

Financial

Comments

avoidfullprice on 09/01/2023 - 21:19

+4

Go through a mortgage broker. You might able to get a good deal without LMI
- nuker on 09/01/2023 - 21:20
  
  +1
  
  I did, he arrived at "no LMI" option only after I stalled and said I'm going to look around :) Need more brokers.
  - Chandler on 10/01/2023 - 10:32
    
    +1
    
    Yeah that sounds like a broker problem, not a lender problem.
meowsers on 09/01/2023 - 21:29

No LMI if you are a professional (doctor/accoutant/lawyer etc)
- nuker on 09/01/2023 - 21:30
  
  sadly, IT schmuck
  - meowsers on 09/01/2023 - 21:31
    
    +4
    
    that's okay you keep everyone else going. LOL probably get paid more than the GP these days.
  - backpaqer on 10/01/2023 - 08:21
    
    Go work at a bank. You get cheaper rate and higher lvr before lmi kicks in (up to 95%). But yeah, lmi is something you do not want to be paying. It might be worth keeping in mind that lenders might not be so keen to lend into this market with plummeting valuations.
    - nuker on 10/01/2023 - 20:59
      
      I worked at bank, and another fin-tech, worst work experiences, no more. It is full of sociopaths lol
    - ColtNoir on 10/01/2023 - 21:42
      
      Which bank gives you lmi free loans? I recently started working for one and haven’t seen this, just a 0.5% discount.
      - deveshwar0 on 10/01/2023 - 22:03
        
        @ColtNoir: I've worked previously with the CBA group and we had an option of LMI waiver of up to 95% on OO and 90% on Inv.
        Westpac group does the same as well.
        
        ColtNoir on 12/01/2023 - 14:16
        
        @deveshwar0: Thanks so much. I’ll have to call the staff team and see if it’s still going, couldn’t find it online anywhere.
- MichaelCurnow30 on 21/01/2023 - 23:59
  
  Some banks have made it harder with these professional pack. Believe CBA you now need to be one of the above + earn minimum $150k
El-Rhi on 09/01/2023 - 21:35

+1

Depends on the LVR

81% LVR will be much lower than 90% LVR, given the same loan amount
- nuker on 09/01/2023 - 21:37
  
  Lets talk 85%.
CyberMurning on 09/01/2023 - 21:51

Just dont do lmi
miwahni on 09/01/2023 - 22:44

+2

Not only does it depend on the LVR but it also depends on the insurer - some banks have their own LMI, some only cover up to a certain LVR then get external cover, some only get external cover. And there's no single rate, eg QBE is cheaper than Genworth as a rule, and bank's cover is usually cheaper again. Not much help to you I'm afraid.
- nuker on 09/01/2023 - 23:02
  
  Actually maybe it helps, look for ones that have their own LMI, fat bois.
  - Shadowsfury on 10/01/2023 - 07:34
    
    +2
    
    From memory Genworth has a LMI calculator on their website - doesn't tell you how they work it out but I guess if you change LVR 1% at a time you could map it out, and maybe check if its the same across all loan levels (e.g. do they charge more percentage wise for 85% on $1m vs 85% on $500k)
    - miwahni on 10/01/2023 - 21:40
      
      The GNW web calc is pretty generic, doesn't allow for stamp duty which differs between states, but does give a general idea.
  - MarsTitan on 19/01/2023 - 01:36
    
    ANZ, I think have their own LMI.
vince088 on 09/01/2023 - 23:25

-1

if you have a good job with enough deposit, why do you want LMI?
- nuker on 09/01/2023 - 23:26
  
  Where did I say I want it? Lol Deposit is not great, btw.
  - vince088 on 09/01/2023 - 23:27
    
    +1
    
    ah ok my bad
    
    LMI protects the lender – not the borrower
    
    try this: https://www.westpac.com.au/personal-banking/home-loans/calcu…
    
    The amount of LMI you pay will depend on the size of your deposit and how much your borrow. Use the calculator on this page to see whether you may need to pay LMI and, if so, an estimate of how much.
    - nuker on 10/01/2023 - 00:06
      
      Use the calculator
      
      Will do. Any idea about the formula they use for LMI?
      - vince088 on 10/01/2023 - 00:43
        
        -1
        
        @nuker: Nah no idea soz
- orangetrain on 10/01/2023 - 19:53
  
  The LMI protecting borrowers is a myth. See: https://www.abc.net.au/news/2021-09-09/lenders-mortgage-insu…
  - El-Rhi on 10/01/2023 - 20:28
    
    It has never been touted as something that protects borrowers
  - mans246 on 18/01/2023 - 17:45
    
    Im the broker that was quoted in this article funnily enough. We always try to get options that avoid LMI for our clients
deveshwar0 on 09/01/2023 - 23:38

+6

Bank of Melbourne does $1 LMI for first home buyers up to 85% LVR.
I'm in training with them currently and this is one of the drawcards which I've been told about.
- Homr on 04/11/2023 - 13:13
  
  Do you know if the $1 LMI applies to pre-approvals or final approvals?
Pelicannn on 10/01/2023 - 00:48

+9

On a side note, LMI has to be one of the biggest scams in the home loan industry. I would absolutely love to know what percentage of LMI policies QBE or Genworth have actually had to pay out.

Let’s be real - banks aren’t stupid. They want the LMI to cover the risk that you can’t pay your loan and they need to foreclose on the the loan by selling the house to pay for said loan. Therein lies the problem, the bank will get their own valuation on the property you are purchasing, if that valuation is less than what you’re needing to pay, they aren’t going to give you the loan in the first place. It’s a self-licking ice-cream and I’d love to know the kickback the bank gets paid by QBE/Genworth. Not to mention, you’re paying off said loan from day 1 with repayments plus whatever deposit you started with and more than likely (albeit not currently, but over a long term period) the property has increased in value.

I would genuinely love to know what percentage of LMI policies have been paid out where the bank couldn’t sell the property for what was owed. In my opinion LMI should only be paid on mortgages with an LVR of >95%.

Then lets get into the whole professionals not paying LMI thing… call me salty but I found it quite funny that I had to pay LMI as a pilot in the RAAF, with not only a guaranteed job, but also a job I couldn’t leave even if I wanted to prior to my ROSO being completed (unless I went AWOL and then I’d be thrown in gaol) and apparently that wasn’t a stable enough job?

Classic.

Anyway. Back to your question. FWIW, I paid $8,000 or so in LMI on a $740,000 property and was at almost exactly 85% LVR.
- nuker on 10/01/2023 - 01:34
  
  +1
  
  Your LMI clocks at 0.013. Yes, I am slowly getting at same conclusion, LMI is a scam. They are getting paid interest above RBA rate, the risk is theirs to cover, not ours.
  - Pelicannn on 10/01/2023 - 01:57
    
    +1
    
    Don’t get me started on the interest rates… as far as that’s concerned, we should have 20/25/30 year fixed loans like in the U.S. When I used to live in Texas you could get a 30 year fixed rate loan of under 4%. Absolutely wild.
    
    I’m no finance guru but it doesn’t make sense to me that a bank lends you money at x.xx% and suddenly the rates go up? So now you’re paying y.yy% more. They’ve already given me the money, and if they borrowed it off someone else, they borrowed it at an interest rate below what I was initially paying… why is it if the RBA rates go up, I now have to pay more? I’m not borrowing any more money right?
    - nuker on 10/01/2023 - 02:02
      
      Its price of money, it fluctuates. They do pay new increased rate to savings accounts. In short, not so simple :)
      - Pelicannn on 10/01/2023 - 02:20
        
        +1
        
        @nuker: Yes but that’s because they’re using our money to invest in other things to bring them higher returns. In return we get the ‘safe’ amount of return in the form of interest.
        
        Plus, they will always raise home rates immediately and delay interest on savings, and when rates drop the opposite is true, they keep home loan rates high and immediately drop the savings interest. I get they’re in the business of making money but it’s pretty scummy.
    - backpaqer on 10/01/2023 - 08:35
      
      +1
      
      Conversely over recent years I bet you weren't complaining while your rates were dropping. RBA is a handbrake to control inflation (maybe) and if inflation is running at 5% as a lender you don't want to be lending at a rate lower than 5%. If you lent $100,000 at 4% a year you would expect $104000 back at the end of the year (really simplifying this) but with 5% inflation that $104000 is worth less than your original $100k so you're going backwards. But you've still got staff to pay, shareholders to pay dividends to. So you either increase rates to keep revenue up or you don't have a business and everybody loses.
      - Pelicannn on 10/01/2023 - 09:10
        
        +1
        
        @backpaqer: For me personally, I’d rather a fully fixed loan and the rate never dropped. If the bank said right now 6% for 20 years I’d take it. I’d have taken it 3 years ago too.
- backpaqer on 10/01/2023 - 08:26
  
  +1
  
  Agree. Lmi is additional to the built in insurance that lenders have already. Where I used to work all the loans were insured anyway to protect shareholders/investors that covered missing loan payments etc. Lmi was just icing on the cake.
JIMB0 on 10/01/2023 - 05:13

+2

Keep saving until you get to 20% deposit. No hurry with the market dropping.
Lunarboogie on 10/01/2023 - 06:03

+1

Where in any of the details does it demonstrate that OP is a strong applicant worthy of LMI exemption?

The colour of your money is the only determinant. Everything else is front.
- nuker on 10/01/2023 - 21:34
  
  What colour should it be?? I cannot parse your comment at all, makes no sense.
ForkSnorter on 10/01/2023 - 08:44

-5

~0.85 means you're borrowing $850k to buy a $1 million house. Sure you want to do that?

Interest will be roughly $4250 per month ($51,000 per year).

Add $5000 for home insurance and rates, $2000 for maintenance/repairs, and you will be spending ~$60,000 per year, not including principal repayments.

Assume rent for an equivalent property is $600 per week, which is $2600 per month ($31200 per year).

With your $150,000 in the bank, you'll be making $6,000 interest per year, but will lose $2000 in tax, leaving you with $4000 (but your savings will grow rapidly, leaving you with ~$6000/year by the end of the year).

So, total cost of renting will be ~$26,000 vs ~$60,000 for interest on your mortgage.

That means you save $34,000 per year if you rent. I assume you could save at least another $20-$40k per year, giving you a total of ~$50-74k savings per year. I'd save for at least another year if I were you, or buy a cheaper property. Then you'll be able to pay off your house sooner. Unless you expect house prices to continue to rise in that period?

Having a large mortgage for decades (so popular in Australia), in my opinion kills the fun of everyday life, prevents you from travelling overseas (because you can't afford it), creates stress and sense of pressure for the prime decades of your life.
JimmyF on 10/01/2023 - 08:54

Is it norm that some banks drop LMI completely for strong applications

Rarely, LMI protects the bank not you. So there is little reason for the bank to drop it.
Mulga Bill on 10/01/2023 - 09:09

+1

Look into (NSW) Shared Equity Home Buyer Helper, (VIC) Victorian Homebuyer Fund or (National) Home Guarantee Scheme for low deposit loan with no LMI to see if you are eligible.
- nuker on 10/01/2023 - 21:30
  
  Thanks, missed first one somehow! But these both are income based, I don't qualify.
Mulga Bill on 10/01/2023 - 09:14

+1

I work for a bank. LMI is an insurance premium covering the bank that they pass the cost on to the customer (similar to passing the cost of, say, a valuation to the customer) so, yes, it is an expense to avoid if you can…But let's say you wait 12 months to save an extra $10k needed to avoid LMI (as an example) but house prices go up $20k in that time - you would have been better off paying LMI…it allows you to get into the market sooner and buy a home that you may not otherwise be able to.
- Pelicannn on 10/01/2023 - 09:54
  
  This was the rationale that I used in purchasing. The area I purchased in had strong growth (even pre-covid) and that LMI was paid for in equity very quickly, but that might not hold true anymore.
  
  There’s potential that property market OP is looking to buy into is going down and therefore OP’s LVR is actually going decreasing even without extra savings in 3-6 months time. As such if they’re at 85%, pay LMI and suddenly their property goes down 10% they’ve lost the equity and the cost of LMI along with it
- spal on 10/01/2023 - 12:20
  
  +2
  
  Why is someone making it a point to neg you without explaining themselves. Both information is correct. You have my + vote mate.
- lainey13 on 11/01/2023 - 16:31
  
  +1
  
  House prices aren't going up over the next 12 months.
Mulga Bill on 10/01/2023 - 09:16

+2

In my experience LMI works on a sliding scale…80.1% LVR may incur LMI of 0.01% of loan amount but 90% may be 0.05% of the loan amount
WreckTangle on 10/01/2023 - 09:52

+3

You can’t even port LMI between lenders, the whole industry is such a swindle.
leiiv on 10/01/2023 - 11:25

Do you pay LMI once off or for the life of the loan?
- JIMB0 on 10/01/2023 - 12:24
  
  +1
  
  It's a one off cost that is capitalised into the loan, but you'll be paying interest on it for the life of the loan.
- lachhelix on 10/01/2023 - 15:33
  
  When I got my loan they had both choices - pay upfront or capatilize into loan
spal on 10/01/2023 - 12:27

+1

In my opinion, there are options to avoid LMI.
1. Refer to @deweshwar0 comment above. I believe, NAB also lends upto 85% without LMI for FH buyers.
2. Refer to @Mulga Bill comments for the government schemes available to FH buyers. I think the Federal Government National Home Gurantee scheme would be good as you don't need to share equity. The government guarantees the gap which is covered by LMI. One can buy a home for as low as 5%. If in Victoria then you could try the VIC Govt's scheme too, because you maybe able to pay the government to buyback the government's equity. I think if you buyback within two years, there may not be any further costs. Don't take my word and look up the schemes.

Also, look for another broker. This is the information your broker should have provided you.
orangetrain on 10/01/2023 - 15:12

+2

FYI, LMI is also a trap. If you default, the LMI insurer will pay off the loan and go after you to pay it out which can be many thousands.
- MarsTitan on 19/01/2023 - 01:46
  
  People don't get this fine detail. It does not protect the customer but the LMI insurer can go after the customer to recover its lost money.
Bob Lou on 13/01/2023 - 23:52

Be aware, even though some lenders offer 0 or $1 LMI, the interest rate will be slightly higher.
ely on 01/10/2023 - 16:32

If it's of any use to anyone else, I nabbed this from Finder's LMI calculator as the code is in client side javascript. You can throw this in as a custom function in Google Sheets if you're modelling things across a range of scenarios. Obviously it's an approximation only, as (as noted elsewhere) the actual banks are all going to have their own actual values, but it aligns reasonably well with some scenarios my broker has given me so it's not completely insane.

function getLMI(propertyValue, mortgageAmount) {
let premium;
let lvr = 100*mortgageAmount/propertyValue;
if (lvr <= 80.00) {
return 0;
}
if (lvr > 95.00) {
return 'Error: Mortgage unlikely to be approved';
}
if (mortgageAmount > 2500000){
return 'Amount exceeded $2.5M';
}

let multiplier = 0.0;
if (lvr > 80 && lvr <= 81) {
switch (true) {
case mortgageAmount <= 300000: multiplier = 0.475; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 0.568; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 0.904; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 0.904; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 0.913; break;
case mortgageAmount >= 1000001: multiplier = 0.950; break;
}
} else if (lvr > 81 && lvr <= 82) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 0.485; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 0.568; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 0.904; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 0.904; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 0.913; break;
case mortgageAmount >= 1000001: multiplier = 0.950; break;
}
} else if (lvr > 82 && lvr <= 83) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 0.596; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 0.699; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 0.932; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 1.090; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 1.109; break;
case mortgageAmount >= 1000001: multiplier = 1.210; break;
}
} else if (lvr > 83 && lvr <= 84) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 0.662; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 0.829; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 0.960; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 1.090; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 1.146; break;
case mortgageAmount >= 1000001: multiplier = 1.310; break;
}
} else if (lvr > 84 && lvr <= 85) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 0.727; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 0.969; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 1.165; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 1.333; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 1.407; break;
case mortgageAmount >= 1000001: multiplier = 1.500; break;
}
} else if (lvr > 85 && lvr <= 86) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 0.876; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 1.081; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 1.258; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 1.407; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 1.463; break;
case mortgageAmount >= 1000001: multiplier = 1.640; break;
}
} else if (lvr > 86 && lvr <= 87) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 0.932; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 1.146; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 1.407; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 1.631; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 1.733; break;
case mortgageAmount >= 1000001: multiplier = 1.810; break;
}
} else if (lvr > 87 && lvr <= 88) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 1.062; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 1.305; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 1.463; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 1.631; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 1.752; break;
case mortgageAmount >= 1000001: multiplier = 1.940; break;
}
} else if (lvr > 88 && lvr <= 89) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 1.295; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 1.621; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 1.948; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 2.218; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 2.395; break;
case mortgageAmount >= 1000001: multiplier = 2.510; break;
}
} else if (lvr > 89 && lvr <= 90) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 1.463; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 1.873; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 2.180; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 2.367; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 2.516; break;
case mortgageAmount >= 1000001: multiplier = 2.730; break;
}
} else if (lvr > 90 && lvr <= 91) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 2.013; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 2.618; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 3.513; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 3.783; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 3.820; break;
case mortgageAmount >= 1000001: multiplier = 3.960; break;
}
} else if (lvr > 91 && lvr <= 92) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 2.013; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 2.674; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 3.569; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 3.867; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 3.932; break;
case mortgageAmount >= 1000001: multiplier = 4.120; break;
}
} else if (lvr > 92 && lvr <= 93) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 2.330; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 3.028; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 3.802; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 4.081; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 4.156; break;
case mortgageAmount >= 1000001: multiplier = 4.440; break;
}
} else if (lvr > 93 && lvr <= 94) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 2.376; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 3.028; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 3.802; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 4.286; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 4.324; break;
case mortgageAmount >= 1000001: multiplier = 4.590; break;
}
} else if (lvr > 94 && lvr <= 95) {
switch(true) {
case mortgageAmount <= 300000: multiplier = 2.609; break;
case mortgageAmount >= 300001 && mortgageAmount <= 500000: multiplier = 3.345; break;
case mortgageAmount >= 500001 && mortgageAmount <= 600000: multiplier = 3.998; break;
case mortgageAmount >= 600001 && mortgageAmount <= 750000: multiplier = 4.613; break;
case mortgageAmount >= 750001 && mortgageAmount <= 1000000: multiplier = 4.603; break;
case mortgageAmount >= 1000001: multiplier = 4.790; break;
}
}
premium = multiplier/100 * mortgageAmount;
return premium;
}

How Much Is Lender Mortgage Insurance (LMI) after all?

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