{"id":12751,"date":"2017-07-18T03:00:59","date_gmt":"2017-07-17T17:00:59","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=12751"},"modified":"2017-07-18T03:00:59","modified_gmt":"2017-07-17T17:00:59","slug":"the-insurance-you-pay-for-someone-else-andrew-mirams","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/the-insurance-you-pay-for-someone-else-andrew-mirams\/","title":{"rendered":"The insurance you pay for someone else – Andrew Mirams"},"content":{"rendered":"

You\u2019ve probably heard the term, LMI \u2013 lenders mortgage insurance. What is it? What\u2019s behind it? Is it necessary? Is there a way not to have to pay it? \u00a0Andrew Mirams<\/strong> gives us the lowdown.
\nTranscript:<\/strong>
\nKevin:\u00a0\u00a0<\/b>You\u2019ve probably heard the term, LMI \u2013 lenders mortgage insurance. What is it? What\u2019s behind it? Is it necessary? Is there a way not to have to pay it? Let\u2019s find out. Andrew Mirams from Intuitive Finance is here to explain what it\u2019s all about.
\nLenders mortgage insurance: is it a curse or a benefit?
\nAndrew:\u00a0\u00a0<\/b>Kevin, it\u2019s not a curse at all; it\u2019s a requirement for many borrowers to just get into the market in the modern day. When we\u2019re talking about housing affordability, it\u2019s probably not a housing affordability crisis that we\u2019ve been in; it\u2019s actually the ability for people to save that deposit to get in.
\nSo, what is LMI or lenders mortgage insurance? It\u2019s basically the difference\u2026 In Australia, all our lenders want you to have 20% deposit plus cover your stamp duties and costs and things like that. So, on a standard $500,000 purchase, you should have $100,000 plus your stamp duties and costs. You might have $125,000 to 130,000 to get in.
\nAs it\u2019s becoming dearer to live and everything like that, and we\u2019ve had a pretty low amount of wages growth, it\u2019s getting harder and harder to save that deposit. So, you can then lend up to 90% and 95% to buy your home, and it just requires an insurance there, which actually protects the lender should you ever default down the track.
\nIt\u2019s not an insurance that protects you; I think it\u2019s about the only insurance in the world that you pay and it protects someone else. So, it\u2019s there to cover the buffer, the margin.
\nKevin:\u00a0\u00a0<\/b>On that point, that\u2019s probably one of the biggest gripes. How do they get away with that? Why aren\u2019t the banks having to meet that themselves?
\nAndrew:\u00a0\u00a0<\/b>Well,\u00a0<\/b>I guess the banks could just say no in reality. The reason they want that 20% margin there is they know that the markets go up and down at different times, and if there\u2019s ever a reason that they might have to force sale a property, they want a margin in there that they know they\u2019re going to be able to recoup their funds.
\nThe one thing we know about our Australian banks is that they don\u2019t lose money. So, that\u2019s why they don\u2019t do it, and the mortgage insurers are a separate arm to the lenders.
\nKevin:\u00a0\u00a0<\/b>Okay.\u00a0<\/b>What is the cost of it?
\nAndrew:\u00a0\u00a0<\/b>That depends. There\u2019s a whole range of factors there. It will depend on the loan amount and how high. There are certain tiers up: to $300,000, over $750,000. There\u2019s a whole range of different tiers. The more exposed you are just from a dollar perspective, the more expensive it will be.
\nIf you\u2019re only putting in a 5% deposit \u2013 so the bank is giving you a 95% loan \u2013 and the risk is higher, they\u2019re more at risk because there\u2019s less margin, so you will pay more for LMI on that situation. If you\u2019re putting in 15% deposit and your loan is 85%, then you\u2019ll find that your mortgage insurance will be a lot lower.
\nSo, there\u2019s not an actual cost that I can quote you, Kevin, because there are a whole lot of specifics in terms of your actual loan-to-value ratio, the loan amount, and then there\u2019s some analysis around the client as well that happens.
\nKevin:\u00a0\u00a0<\/b>Of course, if you want to avoid it altogether, you just have to cough up a 20% deposit. Has that 20% barrier ever moved? Was it ever less or more?
\nAndrew:\u00a0\u00a0<\/b>No, not in my time, and I\u2019ve been lending for around about 30 years. It\u2019s always been around that 20%. Like I said, it covers the lenders for those margins when property may go up and go down. It would be na\u00efve to think that properties don\u2019t fluctuate like shares and other things in the market; there are cycles. So, it\u2019s just there to give them a comfort or a buffer.
\nKevin:\u00a0\u00a0<\/b>I do know that with some other types of borrowing \u2013 for instance, in a super fund \u2013 sometimes you\u2019re required to come up with an even bigger deposit. Is that also geared to LMI, or is it also just because it\u2019s a super scheme?
\nAndrew:\u00a0\u00a0<\/b>No, in super, you wouldn\u2019t be able to get lenders mortgage insurance because that\u2019s actually governed by the SIS Act and the superannuation. They\u2019re very stringent in their rules on superannuation.
\nKevin:\u00a0\u00a0<\/b>Okay, there it is. LMI all explained for you. A necessary evil but probably a good one. It does protect you in the long run, but it also protects the bank. Andrew Mirams, thank you very much for your time. Andrew Mirams of course from Intuitive Finance.
\nThanks, mate.
\nAndrew:\u00a0\u00a0<\/b>My pleasure, Kevin. Thank you.
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

You\u2019ve probably heard the term, LMI \u2013 lenders mortgage insurance. What is it? What\u2019s behind it? Is it necessary? Is there a way not to have to pay it? \u00a0Andrew Mirams gives us the lowdown. Transcript: Kevin:\u00a0\u00a0You\u2019ve probably heard the term, LMI \u2013 lenders mortgage…<\/p>\n","protected":false},"author":176692471,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[32,34,10,11,13,25],"tags":[101],"class_list":["post-12751","post","type-post","status-publish","format-standard","hentry","category-buying-a-property-topic","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-sponsored-channels","tag-podcast"],"yoast_head":"\nThe insurance you pay for someone else - Andrew Mirams - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/the-insurance-you-pay-for-someone-else-andrew-mirams\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The insurance you pay for someone else - Andrew Mirams - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"You\u2019ve probably heard the term, LMI \u2013 lenders mortgage insurance. 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