All Topics / Help Needed! / Refunding of LMI
- DraconisVParticipant@draconisvJoin Date: 2006Post Count: 319
Would a bank refund a LMI if you brought your LVR down from say 90 to 80(or less) within a year(or some other time frame)??
My understanding of LMI is that the banks pay an indepedant 3rd party for the insurance, it's not a fee, therefore I doubt it very much. Ask your bank though, can't hurt.
No normally if you pay out the loan in its entirity by sale or refinance.
Richard Taylor | Australia's leading private lender
Does that mean it is a bank charge or do the banks engage a third party? And when you pay out the loan, are you entitled to a refund no matter what, or only a portion?
Yes most lenders pay a 3rd party insurer (there are some self insured exceptions) and if you refinance or sell the property you can apply for a LMI refund which is proportional dependant on the number of months since the loan was settled.
After 1-2 years you are unlikely to get anything back at all.
Richard Taylor | Australia's leading private lender
I've actually had a refund previously, so I know a wee bit about this. As Richard has said, it depends on how long you've had the loan. Though the proportion isn't straight line – you lose most in the first month, and I understand that the refund drops down to zero after 12 months. Even after 6 months, you wouldn't get half back, you may get a quarter or a third, so after 9 months you're getting close to a nil refund anyway – probably less than 15%. Even after only a month, you'd probably lose 20%. The logic is that you're most likely to default in the earliest months.Steve McKnightKeymaster@stevemcknightJoin Date: 2001Post Count: 1,763
Remember that LMI is insurance for the bank against your repayment default. Even though you pay it, you don't get the benefit. My understanding is that even if you default and the bank claims on LMI, your credit rating will remain trashed.
There aren't too many mortgage insurers, and hence the market isn't very competitive. One of the ways the previous government looked at reducing loan costs was to contemplate opening up the LMI market to more players. I haven't heard of any developments as to whether or not this ever progressed beyond being a draft policy.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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Steve and others,
It still does not make sense to me for a bank or lending institution to give a refund no matter when the loan is paid out. I don't understand why any company would unless legislation stipulates that it is to be refunded.
JLLinarMember@linarJoin Date: 2004Post Count: 567
I have had a number of refunds of late. WIth my particular insurer, Genworth, if I sell the property within 12 months of taking out the mortgage I get a refund of 40%, dropping down to 20% if I discharge the mortgage within 1 – 2 years. I think after that there is no refund.
I have never heard of getting a refund just by dropping back the LVR and remaining with the same bank (and therefore insurer). It would be worth checking with the bank though.
KFireflyParticipant@kizJoin Date: 2004Post Count: 30
I have been refunded on my last 2 loans. The first loan i settled in 8 months and received about 50% back and the second loan i settled after 17months and still got around 40% back. (The second cheque came from gemworth) Both of these refunds though i owe to my fantastic mortgage broker who applied for them on my behalf. I'm sure if that wasn't done i would not have received anything. (Thank you to Mick Harms at Wizard in Randwick!) As far as i understand, every company has a different policy as to when and how much they refund, if any at all. My broker was saying that some institutions are stopping refunds altogether, pretty bad when they are not the ones who fund it in the first place! My advice though, look into it for yourself, put the pressure on and you may just get a large surprise cheque in the mail rather than the never ending bills!
What is the point of them giving you a refund. What benefit do they get? It's been a long time since I have used it, but why would the company do this unless it is in there policy as a selling point. I thought that most insurance was taken through the bank, the customer just paid for the banks preferred insurer. Do you purchase your own and give the documents to your lender?
JL, if you're having difficulty grasping this concept, consider this analogy. You buy a year's worth of car insurance, but after 6 months you sell the vehicle. You can get a refund on the remaining 6 months of car insurance.
LMI is like "default insurance", but because the value of the underlying asset increases, you use it up unevenly – more initially when your LVR is lower, and less each month.
What I'm getting at is why the company's would give you a refund at all. I understand the agruement from a consumer point of veiw, but because the market is so limited, competition is not really a factor. Buisiness will occur anyway, if you give refunds or not. So why would they offer refunds, or portional ones.Is it more of a good will guesture to encourage you to engage the insurer again. Are the insurers then trying to target people like yoursalf, who as an investor who for lending purposes require LMI.
JLJL wrote:Buisiness will occur anyway, if you give refunds or not.
I know that even if I have enough deposit that I don't need LMI, I may choose to go for a higher LVR lend and pay LMI because it leaves my equity free to get into more deals. Knowing that if I manufacture growth – which I aim to do immediately after purchase – I can obtain a partial refund of LMI makes me more inclined to pay it than if I knew I could never get any of it back. So yes, it encourages people like me to take out LMI more often than would otherwise be the case.
If you did not get the refund, would you still invest the way you do with minimal deposits paying LMI?
Yes, I usually would. But others may not. I'm just suggesting what their thinking might be.jenstaMember@jenstaJoin Date: 2007Post Count: 17
does anyone know if PMI gives refunds? I raised the whole LMI refund issue with my broker and she believed that this is a myth. Would appreciate some feedback so I can fill her in!
If that is the case jensta i would be switching brokers.
Richard Taylor | Australia's leading private lenderDraconisVParticipant@draconisvJoin Date: 2006Post Count: 319
Woah, I made this post yesterday, come back today it has grown alot.
Thank you everyone for your help. The partial refund and limited timeframe(under a year) is generally what is floating around in this thread.
Chris.LinarMember@linarJoin Date: 2004Post Count: 567
I also use LMI all the time for the same reasons that trakka does. The fact that I get a refund is an added bonus. In fact I didn't even know that I was entitled to a refund until I received the cheque in the mail. I have received at least 6 refunds and I have never applied for them!
I would use LMI even if I didn't get the refund. I have read several times to avoid LMI if possible but to me it is a fabulous wealth creation tool. If I have a spare $60,000, I can either use it as a 20% deposit on a $250,000 house that will increase at about 10% pa, increasing my equity by $25,000pa. Or I can buy two $250,000 houses putting down a 10% deposit on each house and getting LMI (probably about $6000 all up as a once off fee). My portfolio is then worth $500,000, increasing my equity by about $50,000pa. You can see that the LMI fee is really just chicken feed in the scheme of things.
As to why they do it, I don't know, although I expect that trakka's car insurance analogy is correct. But if they are refunding money, I'm not going to be querying it!!
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