Some say that the real barrier to refinancing is the Lenders Mortgage Insurance. Because when you plan to switch loans, you will not just pay a $700 worth of exit fee but even thousands of dollars for the cost of lenders mortgage insurance.
To help borrowers find lenders with better rates, the government is working on eliminating these exit fees. So going back to what was said earlier, about paying thousands of dollars for lenders mortgage insurance or LMI.
The lenders mortgage insurance is an insurance for the lenders. That in case a borrower suddenly evades the loan, for whatever reason, and the balance of this loan is higher than what the lender will get from selling the property, they wouldn’t have much of a problem.
When you take into consideration what the lender goes through to loaning over 80% of the property value, you would say that the LMI fee is reasonable. However, when you do decide to switch lenders, what happens now to your LMI? This now becomes a hindrance to refinancing.
There are different cases for those who wish to refinance. Some would be obliged to pay the LMI premium twice, which is paying for the LMI of the old and the new lender. Others, particularly the borrowers would debate over this issue, saying that the LMI should be transferred to the new lender instead of them paying twice.
It is possible though to get a rebate of your LMI after you terminate your policy but it is up to you to ask for it from your provider.
So, before you refinance, ask your broker to find out whether the new lender will waive the LMI for up to 90% of the LVR (Loan Value Ratio). This is possible for some lenders so do your research before doing any move.
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