WHAT IS LENDERS MORTGAGE INSURANCE (LMI)
LMI is calculated on the total Loan to value Ratio (LVR) of the loan. In general, LMI applies to all loans with an LVR of >80%.
LMI is a once off non-refundable or non-transferrable premium that can be paid from client’s own funds or added to the loan, depending on Lender’s maximum LVR policy. The client may be eligible for a partial refund if the loan is paid out within the first year (T&C apply), refer to individual Lender.
LMI allows clients with <20% deposit to borrow money and enter the property market sooner with a smaller deposit. LMI would also be applied on any refinance or restructure of a loan where the LVR is >80%. A LMI premium is calculated based on the risk to the Lender, the higher the LVR and loan size, the higher the premium.
LMI protects the Bank against any loss they may incur if a client is unable to repay their loans and the Bank has to step in to sell the property. The LMI insurer may seek to recover any remaining shortfall from any borrower(s) and or any guarantor(s) on the loan.
The two main Insurers are:
Helia (formally Genworth)
QBE
For full T&C on LMI, refer to the relevant Lender.
**LMI does not provide any protection to the clients.
Calculating LMI
Each Lender will have an LMI calculator that you can use to calculate the relevant level of LMI
An indication of LMI will be displayed within the product comparisons when
generated from Infynity
You will need to know the security property value and total loan amount required, State and type of scenario to calculate an LMI premium
If the client needs to capitalise the LMI (added to the loan), that means the clients loan will be increased to cover the LMI premium. The loan repayments will be adjusted according to cover the higher loan amount and the client will pay more interest over the agreed term of the loan.
Comparing products with LMI within Infynity
Based on your discussions with your clients, you will be able to produce the relevant product comparisons which will display as an indication, the LMI if the scenario is >80%.
Within Infynity, create the loan scenario using the Compare Products tab, making sure you enter the correct information for the security value, loan size, loan type and State.
For LVR >80%, indicate if you want the LMI to be capitalised by toggling on that option (this will affect how the LMI premium is displayed within the comparisons).
If you are working with a First Homeowner, indicate by toggling on that option,
depending on the Lender, lower premiums may apply for First Home Buyers.
If you select to capitalise the LMI it will be added to the loan amount and the monthly loan repayments will be adjusted accordingly.
If you don’t capitalise the LMI it will show as a cost to the client.
You also have access to a few different general calculators that you can complete to provide an indication of LMI. Within the Calculators tab, you can access the Total Costs and Mortgage Insurance calculators
Along with the separate Funding calculator from the Calculators tab >> Funding.
Within the funding calculator you can also override the LMI value to show a funding position based on your specific scenario ie Medical Package LMI waiver
How to Adjust LMI within Infynity
Within Infynity we provide an indication of LMI premiums across the different lenders, based on the scenario entered. The lenders individual LMI calculator will be able to provide a more accurate LMI premium quote.
The lender’s LMI calculator can consider any LMI that has previously been paid to that Lender on existing loans.
Within Infynity, you can then adjust the LMI, to show a reduced LMI premium as required or waive the LMI premium where applicable.
You can use this feature to alter the LMI for the following scenarios or anytime a LMI needs to be amended or waived.
Top up or supplementary loans where previous LMI has been paid on an existing loan and you want to only show the new LMI portion on the new loan
Medico packages to waive the LMI all together if the client qualifies for the Lender’s LMI waived policy
FHLDS applications to waive the LMI on LVRs above 80%
You can adjust LMI in two ways within Infynity.
Within the Funding calculator as outlined in the above example
Within the product comparison (Compare Products) – select Override Values to make changes to the displayed LMI premium
Enter in the new values, as per the completed Lender’s LMI calculator or enter $0 if the LMI is being waived by the Lender and click on submit values to save the changes.
The changes will then be reflected within the product comparison to the client and within the SOCA document.
Make clear notes on the client account when adjusting or waiving any LMI premiums.
Disclaimer: This information is current as at the time of each QRG publication. It is a general information guide only.