Powered by MOMENTUM MEDIA
realestatebusiness logo

Subscribe to our newsletter

Excessive premiums costing borrowers thousands: PC

Lenders are charging borrowers with unnecessary premiums, leaving them thousands of dollars out of pocket, according to the Productivity Commission.

In its draft report, released following its review into competition in the Australian financial system, the Productivity Commission (PC) has claimed that mortgagees with a loan-to-variable ratio (LVR) of over 80 per cent are compensating lenders twice through the payment of lenders mortgage insurance (LMI) and higher interest rates.

“Home loan consumers with a loan-to-value ratio in excess of 80 per cent are often required to compensate lenders twice for this risk: by bearing the cost of lenders mortgage insurance, and also by paying a higher interest rate on their home loan, even after other loan and borrower characteristics have been accounted for,” the PC’s draft finding 8.3 reads.

Consulting the PC, former CEO of the Australian Institute of Professional Brokers Maria Rigoni suggested that high-risk borrowers are paying “many thousands” in unnecessary premiums.

“In the circumstance of high loan-to-value ratio or low-deposit loans, we see a premium interest rate for risk being applied,” Ms Rigoni said.

Advertisement
Advertisement

“Yet these borrowers pay many thousands of dollars for the lenders mortgage insurance premium, which protects the lender against loss due to borrower repayment default.”

The PC urged lenders to produce LMI fact sheets to better inform prospective borrowers, as proposed by the federal government in 2011.

Further, the PC called for the introduction of “automatic reimbursement of unused” LMI for borrowers that have paid off their loan or are seeking to refinance.

Moreover, in an additional measure to better inform borrowers, the PC believes that in order to “shine a light” on home loan interest rates, industry regulators should collect and publish data, on an ongoing basis, for consumer consumption.

“To improve the negotiating power of consumers, data should be collected on an ongoing basis from lending institutions by APRA on the interest rates for pre-determined and commonly used categories of new residential home loans.

“This data should be published regularly (monthly) on ASIC’s website in a form that would enable consumers to determine, for their particular circumstances, what home loan interest rate others in those same circumstances have received. Currently available digital data collection methods allow close to real-time updating of such data.”

[Related: Mortgage curbs earn banks $500m annuity from taxpayers]

Excessive premiums costing borrowers thousands: PC
mortgagebusiness

Latest News

Discover some of the top news stories impacting the mortgages space in this weekly wrap-up. ...

The financial watchdogs have remained wary of risks to the housing market as cash rate rises flow through to mortgage customers. ...

Australia’s household wealth has reached $14.9 trillion largely due to house price momentum, yet quarterly growth has continued its recent...

VIEW ALL

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

What is the maximum proportion of income borrowers should use to service a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.