Any lenders mortgage insurance experts?

Any home lenders out there? I've done a few calculations based on my limited knowledge but I'm a business lender so not 100% certain I'm correct. I'd rather not take this to my colleagues right now so thought I'd ask here first.

Situation is, we have house A which we purchased for $249k 5 years ago, and now has a loan of $208k. We used equity in that property and bought house B for $322k 3 years ago, has a loan of $326k. Our total debt was 95% of the value of our properties, so we paid LMI on that.

Now, if we sell property A, we have to repay that loan and a portion of the loan for property B. My question is, can we pay it down to just 95%, because we've already paid LMI to that level? Or do we have to repay more, or pay LMI again?

Thanks!

I'm not too sure how already having insurance affects it but when we used equity from Property A to get a 100% loan for property B then sold property A we had to bring the loan down on property b to 80%. If you already have insurance on the total amount of the loan for both then I don't see why it would affect it as all you are doing is bringing your total loan down but I've never held mortgage insurance so have no ideas of the technicalities.

Sounds like you might have had enough equity in property A to borrow 100%, but have your total debt under 80%. So your original loan would have been a lot smaller than the value of property A. We probably bought our second property too soon, so we needed the LMI.

I'm pretty sure you're right though, we already paid it to 95% so shouldn't have to pay it again.

Yep you are right. We brought in a mining town at the start of the boom so we just got lucky that in that time we owned it the prices increased dramatically.

You could always call another bank and get the information. Just say you are thinking of refinancing and explain the situation.

Found this for you :)


"If you’re borrowing more than 80% of the value of a property, you will have to pay lenders mortgage insurance, or LMI, which protects the lender in the event that you default on the loan and the outstanding value of the loan is greater than what they will receive from selling the property.

The cost of LMI is determined by the loan to value ratio (LVR), the size and type of loan and your credit score. For instance, borrowing $450,000 on a $500,000 property could cost you $8,815 in LMI – a cost which is paid upfront.

While most allow LMI is a reasonable charge considering the risk a lender takes in loaning more than 80% of the property value, many find fault with the inability to transfer LMI should you decide to switch loans – therefore creating a barrier to refinancing.

In some cases, but not all, borrowers looking to refinance will be forced pay the LMI premium twice. So even though the lender you originally placed your loan with is no longer at risk should you default, the lender that you refinance with is not covered and could require you to pay LMI again.

Some argue that this is a case of mortgage insurers getting two bites of the cherry, and that borrowers should be able to transfer their LMI to the new lender when they refinance.

While it is possible to get a rebate on your LMI when you terminate your policy – it’s important to note that it’s up to you to ask your provider for the return.

According to Finance Brokers Association of Australia president Peter White, LMI is an insurance product and as a result you should get a proportional rebate when it’s terminated. However, if you don’t ask for it, you won’t get it. He adds that most would be lucky to get 40%.

Most LMI policies will not extend a rebate to borrowers after 12 or 24 months"

Thanks :) We'll be staying with the same bank, so I think we should still be covered.

Whoops! I am sorry - I've just noticed you're asking about selling property A - rather than financing another.

I have a friend who is a mortgage broker. I'd be happy to ask her for you.

OK - as luck would have it, my friend is on Facebook tonight so we have an answer:

"The loan would need to be paid down to at least 95% because this is what the original LMI was at. If changing lenders then it's tricky because the new lender has the right to charge a new LMI premium. The premiums are taken out on behalf of the bank and policies can't be transferred although some rules state that partial refunds are available up to 2 years.

If staying with the same bank, then paying down the loan to the 95% mark should be acceptable. Most banks will guide you prior to any decision as well, so probably a good idea to ask the bank. That'll also help with a gauge on what the first property has to sell for to make enough money to cover the pay down on the second property"

My friend said if you have any other questions to just ask :)

Thanks for that :) That definitely helps. I'd been working on needing to pay down the second loan to 80% before remembering we'd borrowed more and paid LMI. I've asked my friend at my old branch to order valuations on both houses for me, to see exactly what we can do with the second house and what the first might sell for. If we get good numbers then I'll tell them what we're up to lol.

Crossing fingers the market behaves for you!