Nila Sweeney

Q. I purchased a property 18 months ago for $475,000 and borrowed $450,000 to pay for it. I consequently had to pay approximately $10,000 in mortgage insurance. If I were to change my home loan from my current lender to a new lender in a different bank, would I have to pay mortgage insurance again?

A. Generally speaking, mortgage insurance is not portable if you refinance to a different lender. For each new loan a lender writes, it looks at the loan to valuation ratio (LVR) to assess whether lenders' mortgage insurance (LMI) is required. When you took out your loan 18 months ago, your LVR was 5%. Your lender required you to take out LMI because your LVR was less than 20%. Whether you would be charged LMI now depends on how much equity you have built up in the property over the past 18 months. If you were on an interest-only loan, you would not have repaid any of the principal (and thus have no equity), but you may well have paid off a decent chunk on a principal and interest loan.

Depending on which mortgage insurer you are with, you may be entitled to a partial refund on your existing LMI policy. Some insurers refund borrowers who refinance within 12 months, but others allow refunds for those switching after 24 months, so check with your mortgage insurer. In short, you'll need to do your sums to determine how much equity you now have in your home and what your LVR will be if you decide to switch - on that basis, you can determine whether you will need LMI.

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