Lenders Mortgage Insurance can be waived for some loans if the circumstances are right and the correct lender is used. As a general rule, any borrower seeking a loan over 80% LVR on a full doc basis will need to pay Lenders Mortgage Insurance or LMI. Lenders Mortgage Insurance protects the lender and not the borrower as it is an insurance policy on the loan itself. Hence it is the lender’s mortgage which is protected.
For the right borrower the LMI can be waived as detailed below.
What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance or LMI is an insurance policy on the loan or mortgage. This insurance policy protects the bank’s money in the event of default by the borrower and subsequent loss as a result of foreclosure by the lender against the borrower.
Lender’s Mortgage Insurance does not protect the borrower.
When can LMI be waived?
LMI can be waived for certain borrowers if they fit a particular borrower profile. Namely, at 85% LVR one can get a loan under the 85% LVR no LMI policy available with 2 different banks. Certain professionals can also have the LMI waived if they work within specific fields like the medical industry.
Some lenders will also waive LMI on a case by case basis for loans that only fractionally go over the LMI threshold like 81.5% for the right borrower. This is particularly the case with stable employment borrowers with the same employer over a medium to long term period. Your Mortgage Providers loans consultant will be able to tell you if this could apply to you.
Is there a substitute to LMI?
Generally, most lenders will charge LMI for their loans over 80% LVR. However, some lenders have taken to create their own risk underwriting process. Hence there are a few lenders who will not mortgage insure some of their loans, but charge a risk fee instead and waive the LMI cost!
The lenders who do this are still protecting their mortgage by charging a protection fee to cover the mortgage, but it’s not an insurance policy. By doing this, the lenders are avoiding having to charge the relevant government fees and charges such as GST or stamp duty which are applicable on all types of insurance policies. Savings in this scenario are passed on to the borrower by way of no government input taxes. Most of the premiums or fees applicable in this case are also significantly cheaper than the standard LMI that is charged by the lenders.
There are a few lenders who will waive the LMI and charge their own risk fee instead. Different names have been applied to this process such as:
- Risk Fee
- Reduced Equity Fee (REF)
- Low Deposit Premium (LDP)
At Mortgage Providers we tend to call this process ‘in house self mortgage insurance over 80% LVR’. This approach gives the lender the ability to underwrite a loan using their own rules and policies without the need to seek an external mortgage insurance provider.
If you think that you fit the criteria to have the LMI waived or want to compare the LMI costs of different LMI providers, then give us a call or use the attached comparison LMI calculator.
Maximum LVR one can have LMI waived to?
The maximum LVR one can have the LMI waived to is 95% LVR up to $2.5m. This LMI waiver policy is strictly for people within the medical profession like;
- Cardio Thoracic Surgeon
- Clinical Pharmacologist
- Cosmetic Surgeon
- Ear and Throat Surgeon
- Emergency Surgeon
- Gastro Intestinal Surgeon
- General Practitioner(GP)
- General Surgeon
- Neuro Surgeon
- Oral and Maxillofacial Surgeon
- Orthopaedic Surgeon
- Orthopaedic Registrars
- Paediatric Surgeon (Neonatal/Perinatal)
- Plastic Surgeon
- Reconstructive Surgeon
- Respiratory/Thoracic Surgeon
- Vascular Surgeon
If I applied for a low doc loan can I get the LMI waived?
As a general rule, most low doc loans over 60% LVR will require LMI by most big lenders. There are 2 major banks who will waive the LMI on a low doc loan to 70% LVR. They will also charge normal interest rates for this facility. Please see 70% low doc NO LMI.
There are also a few non bank lenders who will charge a risk fee over 60% LVR instead of LMI. This allows the lenders to develop their own underwriting policy for their low doc loans and do loans that other lenders who use traditional LMI can’t provide.
Some non bank lenders who offer low doc loans also offer an 80% low doc with no LMI. This generally carries a risk fee instead with the interest rate being slightly higher. These types of lenders will also approve loans that most LMI providers will not.
Bad credit, can I get a loan with the LMI waived?
Most bad credit lenders do not charge LMI. Instead, bad credit lenders otherwise known as non conforming lenders can charge a risk fee instead of LMI if the loan falls between certain lending brackets. The Risk fee in this case is slightly higher than normal risk fees. Our consultants can give you the exact costing in this case.
At Mortgage Providers we get the LMI waived for many borrowers who would have otherwise paid it. Further, in circumstances where LMI is applicable we can guide you to the lender offering the cheapest LMI and interest rates – so call us today!