Lenders Mortgage Insurance

Hi just wondering if anyone has sold for less than what their loan value is?
If you bought the property with lenders mortgage insurance what are the options with the lender?

Do they arrange some sort of personal loan plan or does the difference go to the insurer?

If it does go to the insurer, does that mean you can now longer use lenders mortgage insurance in future?

 

Depends on the circumstances. There are people on here who have sold less than the loan's outstanding amounts and the banks have let the mortgage be discharged. The borrower will still have a debt to the lender though and eventually they will make a claim against the insurer who will then consider the commercial viability of recovering the debt.

If you owe the insurer money it would be extremely unlikely they would allow a loan to be insured with you as the borrower.

 

LMI protects the banks if you default on your loan and walk away, they sell the properties and if that not enough to covered the loan they go to LMI for the extra agree amount and that still fall short they go after you or the LMI going after you for the differences

but you sell your house less than the value of the loan, you still liable for the differences.

LMI is a cost force on to you by the banks but it is there to protect the banks not you

 

Say you owe $20K to the insurer and then pay it off, would you be allowed to borrow with them in future? or does this mark your credit file as technically it's not because the borrower has defaulted

 

LMI Insurers would be eventually left holding the unpaid debt. It could cause a settlement delay. The insurer will come after you and may even list a default debt until its paid which could harm your credit file. Speak to the insurer and the bank.

 

If they let you.

This would be listed as a credit default on the credit file and generally an insurer would not take on such risk. But you never know.

 

The way around this is to pay the $20k before defaulting

 

As in arrange a personal loan with the bank before allowing the funds to go to the insurer?

 

With the same bank?

 

Yes, they should approach the bank to work out a plan.

 

Yes, time to talk to the bank and then see what the wait times are for can a financial counselling session. Most neighborhood houses have people that will help refer others to appropriate services and provide basic information.

 

So I called QBE, basically any deficit gets assigned to the insurer who can negotiate a payout figure or payment plan suitable to your budget. QBE do not apply a default on your credit, possibly the bank might? Doesn't sound that bad, also if you wanted to try LMI again in future just use another lender who uses a different insurer

 

Just curious How does LMI reduce risk to borrower?

 

It doesn't directly

But by borrowing more that means you would have more cash available - which could be used as a buffer if cash flow got tight.

 

A LMI on 95 lvr would cost around 27% of 15% deposit one saves
for eg. A property of 1mn on 50k deposit (95LVR) would cost 42K in LMI,
make it part of loan and it becomes an even bigger cost.

LMI is a very steep cost for a relatively small buffer don't you think?

 

Sure is and something I would never recommend. But a lower LVR might be different.