If you're a Marmion homeowner paying lenders mortgage insurance (LMI) each month, you might be throwing money away. The good news? Once you've built enough equity in your property, you can refinance home loan and potentially remove this additional cost from your repayments.
Let's explore how mortgage refinancing works when it comes to removing LMI, and why now might be the perfect time for a loan health check.
What is Lenders Mortgage Insurance?
Lenders mortgage insurance protects your lender - not you - if you default on your home loan. Banks typically charge LMI when your loan amount exceeds 80% of your property valuation. This means if you borrowed more than 80% of your home's value when you purchased, you likely paid LMI upfront or added it to your loan amount.
The cost can be significant - sometimes tens of thousands of dollars - making it one of the largest upfront costs when buying property.
When Can You Remove Mortgage Insurance?
The key to removing LMI through a refinance is reaching that magical 80% loan-to-value ratio (LVR). This happens in two ways:
- Paying down your mortgage - As you make regular repayments, your loan amount decreases
- Property value growth - As Marmion property values increase, your equity grows
Most homeowners reach this point within 2-5 years of purchasing, depending on their initial deposit and local market conditions. When your LVR drops below 80%, you can refinance mortgage without needing to pay LMI again.
How Does the Refinance Process Work?
The refinance application involves several steps:
- Property valuation - Your lender arranges a current valuation of your Marmion home
- Loan review - Assessment of your financial situation and borrowing capacity
- Rate comparison - Reviewing current refinance rates and loan features
- Application submission - Completing paperwork with your chosen lender
- Settlement - Switching from your old loan to your new one
The whole refinance process typically takes 4-6 weeks from application to settlement.
Ready to get started?
Book a chat with a Finance Broker at Shoreside Finance today.
Additional Benefits of Refinancing
Removing mortgage insurance isn't the only reason to consider a home loan refinance. You might also:
Access a lower interest rate - If you're stuck on high rate from years ago, you could save thousands by accessing a better rate available today. Even a 0.5% reduction on a $500,000 loan amount could save you over $2,500 annually.
Unlock equity - Release equity to buy the next property, renovate, or consolidate debt. Many Marmion homeowners have seen substantial property growth and can now access equity for investment purposes.
Improve loan features - Modern home loans offer refinance offset account options and refinance redraw facilities that help reduce loan costs over time. These features can improve cashflow and help you pay off your mortgage sooner.
Consolidate debt - If you're carrying credit card or personal loan debt at high interest rates, you might consolidate into mortgage at a much lower rate.
Switch rate types - Coming off fixed rate? Your fixed rate expiry is the perfect time to reassess. You can switch to variable for flexibility or lock in rate again if fixed interest rate options appeal to you. Check out our guide on fixed rate expiry for more information.
Why Refinance Now?
If you haven't reviewed your home loan recently, there's a good chance you're paying too much interest. The mortgage market changes constantly, with lenders regularly adjusting their offerings to attract new customers.
Existing customers often don't receive the same attention, meaning your current interest rate might be significantly higher than what's available to new borrowers. A home loan health check can reveal whether you're missing out.
For Marmion residents specifically, the northern beaches property market has seen solid growth in recent years. This means many homeowners have built substantial equity without realising it - equity that could help you remove mortgage insurance and potentially access a better interest rate.
When to Refinance
Consider reviewing your home loan if:
- You've been in your current loan for 2+ years
- Your property value has increased since purchase
- Your fixed rate period ending is approaching
- You're paying mortgage insurance
- Your financial situation has improved
- You want to access equity in your property
- You're looking to consolidate into mortgage
Understanding the Costs
While refinancing to remove mortgage insurance can save money refinancing in the long run, there are some costs involved:
- Discharge fees from your current lender (typically $150-$400)
- Application fees with your new lender (sometimes waived)
- Property valuation fees (usually $200-$400)
- Potential government charges
A qualified mortgage broker in Marmion can help you calculate whether the savings outweigh these costs. In most cases where you're removing LMI and accessing a lower interest rate, the answer is a resounding yes.
Variable vs Fixed Interest Rates
When you refinance, you'll need to choose between a variable interest rate and fixed interest rate, or a combination of both.
Variable rates offer flexibility - you can make extra repayments, access offset accounts, and take advantage if rates drop. However, your repayments can increase if the interest rate rises.
Fixed rates provide certainty - you know exactly what your repayments will be for the fixed period (usually 1-5 years). However, you might miss out if rates fall, and there are often restrictions on extra repayments.
Many homeowners choose a split loan, fixing a portion for security while keeping some on variable for flexibility.
How Much Could You Save?
Let's look at a real example. Say you purchased your Marmion home for $650,000 with a 10% deposit, borrowing $585,000 plus approximately $18,000 in LMI. Your total loan was $603,000.
After three years of repayments and modest property growth, your home is now valued at $720,000 and your loan balance is $575,000. Your LVR is now 80%, meaning you can refinance without LMI.
If you also move from your current rate of 5.5% to a new rate of 4.8%, you could save thousands over the life of your loan - both by removing the LMI component and by reducing your interest payments.
Getting Started with Shoreside Finance
At Shoreside Finance, we understand the northern beaches property market and work with Marmion residents regularly. We can help you:
- Compare refinance rates from multiple lenders
- Determine if you have enough equity to remove mortgage insurance
- Calculate potential savings from refinancing
- Handle the entire refinance application process
- Ensure you access the most suitable loan features for your situation
Whether you're looking to remove mortgage insurance, reduce loan costs, or access equity for investment, we'll work through your options and find a solution that fits your goals.
Refinancing isn't just about when to refinance - it's about understanding why refinance makes sense for your specific situation. With property values in coastal suburbs like Marmion remaining strong, now could be the ideal time to review your home loan and see what's possible.
Call one of our team or book an appointment at a time that works for you. Let's discuss how refinancing could help you remove mortgage insurance and potentially save thousands on your home loan.