What happens if you are paying LMI monthly and you refinance to another lender?

If you have capitalised LMI with your current lender and you refinance to a new lender (assume 80% LVR at the time of refinancing to new lender), what happens? Do you pay out the remaining LMI balance with the old lender, or do you keep paying monthly LMI for the old loan? Can you get a refund for any part of your LMI if it's been less than 2 years?

 

you have borrowed to pay it already - its fully paid.
Generally no refunds.

 

LMI is incurred when it is charged. It just so happens they added this to the loan so that is how is was paid. This doesnt change how its deductibility (or not) occurs over the 60 month term despite the period of time the cost relates to or how its paid for. If you refinance it makes no difference. You cant just pay off the LMI or treat the loan repayments as being a specific sum for the LMI not unless its a seperate loan. Its a composite part of the loan.

Obviously paying off LMI over 25 years may vastly increase what you pay since for each $1 borrowed you end up paying $2 or more. This doesnt mean you paid 2 x LMI as the extra costs is interest.

 

LMI is already capped on the loan and generally non refundable as the LMI cost is paid to protect the original bank you got the loan from.

 

Ok I think I understand now. So when I refinance, the new loan amount will be higher because the new bank needs to pay out my full loan amount (which had LMI added on top)?

 

Yes.

Generally speaking, think of a 90% LVR loan as 88% + LMI, coming to a total of 90%. You do owe the full 90%.

If you refinance, there's no refund and LMI is not portable between lenders. If the LVR is still above 80%, you will have to pay the LMI again. Given this cost, it would be difficult to justify refinancing until the property value increases or until you've paid off the loan to 80% or lower.

 

And if the loan relates to an investment, before refinancing, you can claim the rest of the unclaimed LMI in one hit;

 

LMI is not portable between lenders, but in some cases, you can get a partial refund of LMI already paid. It will depend on the lender and the terms of your loan.

 

Westpac used to do this, but stopped about 10 years ago. I vaguely recall one lender making a recent announcement on this, but almost no lenders will do a partial refund of LMI.

 

I vaguely remember something too. ANZ perhaps?

 

Yes while two lenders may use Genworth the policy insures a specific lender. Its THEIR policy and you just pay them as a reimbursement, at cost. So if you change insurer you lose the cover.

Some lenders repay a portion of LMI if you rapidly pay down a loan in a short period or fully repay through refinance.

A comparison of LMI insurers and lenders (may not be current ?) here LMI Refund | Are You Eligible For A Refund On Your Premium?

 

Recently notice an amount deposited into my savings account.Checked with Westpac and they confirmed that they had carried out a partial LMI refund as I had refinanced my IP loan to another bank.
The amount was approximately 20% of what the original amount paid during settlement.

 

LMI Refund | Are You Eligible For A Refund On Your Premium?
Interesting article

 

It's not ideal for brokers (as it would lead to more clawbacks if customers were made aware of this), but there could be a decent refund for some customers when property values have increased in a short period of time.

 

I've done it for a number of my clients and have no issues with it, after all it's in their best interest and I will get future business from them.

 

Hi all,
Just found this thread and i am in similar situation. Can someone please suggest if I can get partial LMI Refund?
I had a construction loan for my build and LVR was 13 percent and the bank charged entire LMI ( land plus build) when the land loan was started. Although build loan was approved but due to issues with the build, there was never any money withdrawn for over an year. I had to change the builder and pay lot more but i had enough usable equity through land due to price increase which i have used to make LVR 80 percent and to cover increase in build price and redo/refinance HL with the same bank ( LMI No longer needed Ofcourse with refinance with the same bank)
Now my question is LMI bank(NAB) had charged before on build component should be waived off/refunded or not as it was technically never being used. I think it depends on the bank but recently have seen a post from someone getting LMI refunded.
I have asked my broker but didnt get clear answer so far.
Appreciate any help/suggestion from the wonderful people in the forum.
Thanks

 

i doubt you would get a refund, but it wouldn't hurt to ask

 

Thank you for your reply, appreciate it. I will check with the bank and see what happens.
Thanks