A major mortgage insurer, Genworth, have recently suggested a mandatory mortgage fact sheet for home buyers.
This is a great idea for borrowers to be educated about LMI (Lenders Mortgage Insurance) as many do not know what it is or if it would apply to their loan. It does not protect them as a borrower, yet many borrowers believe that it does.
The key to this fact sheet is that it must be kept simple as the usage of LMI varies between different lenders and insurers, it should inform customers without confusing them.
How not to confuse people
One thing the fact sheet could mention is that some lenders have significantly cheaper LMI than others. However, this fact is unlikely to be supported by the banks.
To much LMI is seen to be an unnecessary cost, but for those Australians who find it difficult to save enough for a deposit, LMI can help them have a chance to taking ownership of a home.
A general rule is that LMI is applied to loans above 80% of the property value with a normal home loan, and above 60% of the property value with a low doc loan.
Article from Australian Broker News
“Mortgage insurer Genworth said a new mandatory one-page mortgage fact sheet for home buyers that will contain details on Lenders Mortgage Insurance will enable them to better compare “apples with apples”.
Announced on the weekend as part of the Federal Government’s bank competition reform package, the new fact LMI sheet will allow consumers to compare quotes side-by-side, including the difference in premiums and rebate schedules.
Treasury has advised against the introduction of a scheme to allow the transfer of LMI between lenders, citing the expense, the extreme complexity of administration, and the conclusion it would benefit only 1% of all borrowers.
Genworth said in a statement the mandatory fact sheet could be similar to the Government’s Key Fact Sheet for home loans, and could be handed out by lenders just prior to borrowers signing their home loan contract.
The insurer said it would benefit borrowers to be aware of the reason for lenders requiring LMI, how LMI reduces the interest rate borrowers with a smaller deposits have to pay, the frequent capitalisation of LMI into the loan, and the availability and structure of refunds.
“Genworth believes it is important that homebuyers know how Lenders Mortgage Insurance works and the benefits it offers, plus their potential rights in relation to existing refund schedules if they switch home loans,” Genworth CEO Ellie Comerford said.”
Source Australian Broker News 22/08/11