The national peak industry body representing finance brokers says lenders and insurers are operating a secretive mortgage insurance scheme that is reaping millions of dollars from those who can least afford it – first home buyers.
The Finance Brokers Association of Australia (FBAA) says it’s time for anyone borrowing for a home with a low deposit to take a stand against this “legal rip off”.
The association says more first home buyers are opting for lower deposit loans due to the fear of missing out on a home in a strengthening property market, without really understanding the costs and restrictions of Lenders Mortgage Insurance (LMI).
FBAA Chief Executive Officer Peter White said while he supported the need for the insurance, first home buyers and anyone else with a low deposit can legally be charged tens of thousands of dollars multiple times for the same insurance on the same property, without this ever being disclosed.
LMI is charged as a percentage of the loan when the borrower’s deposit is less than 20 per cent. Some premiums can be $20,000 or more.
The problem according to the FBAA, is not the insurance itself, but the lack of portability and disclosure.
“The banks are not obliged to disclose the terms and restrictive conditions, as crazy as that sounds,” Mr White said.
“Every time you change lenders to chase a better interest rate, or buy a new home, you can pay a new LMI premium even though you’ve already paid it in your first mortgage.
“There are basically only two overall mortgage insurers so in many instances you are paying the same insurer twice for the same loan. It’s wrong!”
Mr White said that consumers could be entitled to a refund of the insurance in the first twelve to eighteen months, but “rarely has anyone claimed a refund because the lenders are not obliged to tell the customer they may be entitled to one!”
The FBAA says the simple answer is to make LMI portable, but until now the lenders have refused.
“We now need customers to demand portability and fairness. People-power is the only solution.”